Nefport issue 24

NEPAL ECONOMIC FORUM

NEPAL ECONOMIC FORUM P.O.Box 7025, Krishna Galli, Lalitpur - 3, Nepal | Phone: +977 1 5548400 info@nepaleconomicforum.org | www.nepaleconomicforum.org

nefport Docking Nepal’s Economic Analysis April 2016 OCTOBER 2014| |Issue IssuE 24 18

Nepal Economic Forum (NEF) is a premier private-sector led economic policy and research organization that seeks to re-define the economic development discourse in Nepal. Established Nepal Economic Forum (NEF) is a premier private-sector led economic policy and research organiin 2009 as a not-for-profit organization under the beed (www.beed.com.np) umbrella, NEF is zation that seeks to re-define the economic development discourse in Nepal.inEstablished in 2009NEF as a thought center that is working to create positive transformations policy reforms. a not-for-profit organization beed (www.beed.com.np) umbrella, NEF is sector a thought center that stands out in being able under to make significant strides to bring the private perspectives and engage withpositive both the public and private thestands development discourse. is working to create transformations in policysectors reforms.in NEF out in being able toNEF makeis currently a recipient of the Open Society Foundations’ Think Tank Fund. significant strides to bring the private sector perspective and engage with both the public and private sectors in the development discourse. NEF is currently a recipient of the Open Society Foundations’ NEF works in partnership with many Nepali and international institutions in its quest to Think Tank Fund. mainstream the discourse on the Nepali economy, which has not been given the necessary space it deserves.

NEF works in partnership with many Nepali and International Institutions in its quest to mainstream has partnered with Himalayan Consensus (HCI) to facilitate space the development theNEF discourse on the Nepali economy, which has not Institute been given the necessary it deserves. of alternative development paradigms. NEF has worked with HCI to successfully hold the first Himalayan Consensus Summit on March 17-18, 2016.

NEF has partnered with Himalayan Consensus Institute (HCI) to facilitate the development of alternativeNEF development paradigms. working with HCI to host the Himalayan Consensus Summit. broadly works under NEF threeisareas: NEF broadly works underResearch three areas: The Business Policy Center (BPRC) engages in research, dialogue and dissemination relating to pertinent economic policy issues. BPRC has been producing nefport, a quarterly economic analysis publication, nefsearch, a periodic research and conducting First, the Business Policy Research Center (BPRC), which engagespublication in research, dialogue and neftalk, a platform for policy discourse. dissemination relating to pertinent economic policy issues. Through BPRC, NEF has been producing nefport, a quarterly economic publication docking economic analysis and research, nefsearch a Through the Center for Public, Private and Community Partnerships (PPCP), the partnerships periodic research publication, conducting for policy dimension discourse, nefcast, anmodels online discourse is further elaborated throughneftalk, additionaofplatform the community to existing of public private partnerships.

Apart standalone interventions, the PPCP perspectiveonis dissemination platform, and neftake, an from economic blog that provides analysis and perspective integrated thehave worka that NEF and beedoninitiate. various eventsinthat significant impact private sector growth and investment.

NEF operates in the domain of Development consulting through its devCon division. It works Second, through the Center for Public, Private and Community Partnerships (PPCP), the partwith a variety of bilateral, multilateral, national and international NGOs in the areas of policy nerships discourse is further elaborated through addition of the enterprise community dimension to the sectoral existing research, economic analysis, value chain analysis, development, models of public privateprivate partnerships.

The concept stems from the need to integrate the commustudies and public dialogue. nity dimension to economic development strategies especially as Nepal moves towards a federated With transparent systems, high standards conflict of is interest disclosures, strong structure.

Apart from financial standal one interventions, the PPCPofperspective integrated in many of the support of beed back-end infrastructure, access to high quality global and local human resources work that NEF and beed initiate. and firms, NEF is poised to set high delivery and ethical standards for firms operating in Nepal.

Thirdly, NEF operates in the domain of Development Consulting through its devCon division. It works with a variety of bilateral, multilateral, national and international NGOs in the areas of policy research, economic analysis, value chain analysis, enterprise development, sectoral studies fb.com/nepaleconomicforum

and public private dialogue.

@NefNepal

Nepal Economic Forum

With transparent financial systems, high standards of conflict of interest disclosures, strong support of beed back-end infrastructure, access to high quality global and local human resources and firms, NEF is poised to set high delivery and ethical standards for firms operating in Nepal.

Contents

April 2016 | ISSUE 24

05 Editorial

28 Health

..................................................................

29 Tourism

General Overview

32 Trade And Debt

06 Political Overview

35 Foreign Aid

10 International Economy

38 Remittance

12 Macroeconomic Overview

................................................................

................................................................

Market Review

Sectoral Review

42 Financial Market

17 Agriculture

48 Capital Market

19 Energy

................................................................

22 Infrastructure

51 Endnotes

23 Information & Communications Technology

55 NEF profile

25 Real Estate

................................................................

26 Education

Map Source: https://en.wikipedia.org/wiki/File:Un-nepal.png

NEPAL FACTSHEET

KEY ECONOMIC INDICATORS GDP

USD 19.6 billion

Rank

109

GNI (Atlas)

USD 730

Rank

192

GNI (PPP)

USD 2,420

Rank

184

GDP Growth (Annual %)

5%

HDI

0.540

Rank

145

Gross Capital Formation (% of GDP)

37%

Inflation, GDP Deflator (annual %)

8%

Agriculture, Value Added (% of GDP)

34%

Import of Goods and Services (% of GDP)

40%

Exports of Goods and Services (% of GDP)

12% All figures for 2014. Source : The World Bank Update July 1, 2015

EDITORIAL

Issue 24 | April 2016 Publisher Nepal Economic Forum

Website www.nepaleconomicforum.org P.O.Box 7025, Krishna Galli, Lalitpur - 3, Nepal Phone: +977 1 554-8400 email: info@nepaleconomicforum.org

Contributors Akshov Shakya Chirag Man Kansakar Krinisha Shrestha Kashu Dhakhwa Raju Tuladhar Rojesh Bhakta Shrestha Shayasta Tuladhar Shikshya Gyawali Subrina Shrestha Tejaswee Shrestha Tejeshwi Nath Bhattarai

Design & Layout: Ultimate Marketing (P.) Ltd. info@marketingultimate.com This issue of nefport takes into account news updates from 1 December 2015 - 15 March 2016.

The USD conversion rate for this issue is NPR 108.03 to a dollar, a three month average for this issue.

NEF Advisory Board Arnico Panday Basudha Gurung Kul Chandra Gautam Mallika Shakya Shankar Sharma

As Nepal limped into 2016, challenges from the past year were carried forward.

Although the blockade at the Birgunj border was forcefully lifted in early February through efforts of locals and business people in the area, the damage had already been done and implications are certain to be far reaching. The economic impact of the blockade has been debilitating with growth rates likely to plunge close to negative figures. Meanwhile, the black-market for fuel and currency thrived during the period and continued to remain buoyant even several weeks following the opening of border points as supplies failed to normalize swiftly. The rampant proliferation of black-market during this period has raised serious questions about the plight of governance as well as the intent of the government.

On the bilateral front, relations with India plunged to a historic low, however positive response from India to the first amendment to Nepal’s constitution and Prime Minister Oli’s maiden foreign visit to New Delhi has created a more stable environment; preventing further dip in ties. The Prime Minister’s visit to the northern neighbor yielded multiple agreements the most significant being the transit transport agreement between China and Nepal allowing Nepal to use the former’s sea ports for third country trade.

Politicization of state institutions has been a perennial challenge in Nepal. The two-month long delay in the appointment of deputy governors of Nepal Rastra Bank—the country’s central bank—is just another example of the malignancy that has plagued governance. Politicization of such institutions not only undermines meritocracy and further incentivizes internal political duels within institutions but also projects a poor image to the international community and repels foreign investors.

With political resolution to contentious issues of the constitution still elusive and with the blockade further exacerbating economic hardships that the country was already reeling under post-earthquake, international investors and donors seem to be in a ‘wait and watch’ mode. On a positive note, the Pancheshwar Multipurpose Hydroelectricity Project has gained fresh momentum following the Prime Minister’s visit to India. The visit yielded in a final draft of the Detailed Project Report (DPR) along with revised generation capacities. Details on benefit sharing of the project is also likely to be worked out soon. This is a welcome change, and the positive momentum it has created needs to be carried further.

As the country struggles to salvage the economy from a downward plunge this fiscal year, political settlement of contentious issues should be the top priority of all political parties in the country. Unless a comprehensive and mutually acceptable resolution to the discontent is found, clouds of imminent crisis will keep hovering over the country.

We are eager to receive your valuable feedback on how to make future issues of nefport more useful and user friendly. Please email us your suggestions at info@nepaleconomicforum.org.

Sujeev Shakya Chair, Nepal Economic Forum

Nefport Issue 24 – April 2016

5

POLITICAL OVERVIEW The last few months have been testing times for Nepal as it battled with political crisis and a crippling supply crunch. While recent political developments like lifting of the blockade, revival of talks between the government and agitating parties, and the Prime Minister’s India visit for improving bilateral ties, have contributed in restoring a sense of calm, much depends on how contentious issues relating to the constitution are resolved.

Delay in swift and sustainable resolution to the current political deadlock could pose dangers of further fermenting discontent in the plains which could have ripple effects in other parts of the country as well.

Reconstruction bill passed: The

Reconstruction Bill was passed on December 16, 2015; almost eight months after the devastating earthquake. The bill, which was endorsed by the LegislativeParliament without any opposition, opened ways for the formation of National Reconstruction Authority (NRA); which will be responsible for mobilizing funds from state coffers as well as the NPR 443 billion(USD 4.1 billion) pledged by the international community during the International Conference on Nepal’s Reconstruction in June 2015.

Political wrangling among parties in the

6

initial stages, primarily between Nepali Congress and CPN-UML, had stalled the passage of the bill. The agitating Madhes based parties who had made vocal their discontent over the tabling of the Reconstruction Bill along with the first amendment bill, did not oppose the passage of the Reconstruction Bill.1 The government has appointed Sushil Gyawali as the Chief Executive Officer of NRA.2 Obstructions at India-Nepal border cleared: Nepal’s most important border

point in terms of international trade— the Birgunj-Raxaul border point—came

Docking Nepal’s Economic Analysis

back into operation from February 5, 2016 after remaining closed for around 135 days owing to SLMM’s border centric protests following the passage of the new constitution. Locals and businesspersons from both sides of the border removed obstructions at the Miteri Bridge and pulled down the tents planted by agitators.8 The locals, as the entire country, breathed a sigh of relief with the Birgunj border point opening, hopeful that crippling shortage of fuel and other commodities would now end.

Samyukta Loktantrik Madhesi Morcha (SLMM) cadres who had reached the

Docking Nepal’s Economic Analysis

Political Overview

First Amendment to the Constitution passed as political stalemate lingers In pursuit of a settlement to the political crisis surrounding the country, on December 20, 2015, the Government of Nepal passed a three-point cabinet decision which stated that passage of the constitution amendment bill would be taken forward to ensure proportional inclusive representation -- constituency delimitation according to population while ensuring at least one constituency in each district. It envisioned the formation of a political mechanism to review federal demarcations taking into consideration the demands of the agitating parties of Madhes. The mechanism so formed is to be tasked with the responsibility of recommending solutions to the dispute surrounding provincial boundary demarcation within three months from its formation.3 The Samyukta Loktantrik Madhesi Morcha (SLMM) however, rejected the decision and reiterated that its agitations would not end till the dispute on redrawing provincial boundaries is settled.4 The Ministry of External Affairs of India welcomed the cabinet decision issuing a statement and terming the developments as ‘positive steps’.5 Subsequently, the major parties and SLMM formed a taskforce to hold discussions to find solutions to the political deadlock. Despite some progress made in ironing out differences, the taskforce level talks could not yield a concrete deal. The death of three protesters in Rangeli municipality of Morang district, due to police firing, escalated tensions in the plains and dampened hopes of major parties i.e. CPN-UML, Nepali Congress and UCPN (Maoist), and SLMM finding a resolution to the crisis.

Amidst the political quagmire, on January 23, 2015 the House endorsed the first amendment to the Constitution of Nepal. The amendment, passed with the view to address some of the major concerns of the agitating Madhes-based parties, decreased the number of ethnic clusters from 17 to 15, rephrased the term ‘Khas Arya’ as ‘marginalized Khas Arya’, and made population the fundamental basis for constituency delimitation with geography serving as a secondary basis such that each district will have at least one electoral constituency. Constituency delimitation according to population and greater proportional inclusion in all state organs are important aspects of the demands raised by the Madhes-based parties.6 The SLMM however, termed the constitution amendment as ‘incomplete’ stating that it did not fulfill all the demands raised by them.7 In early February, the three major parties and the SLMM agreed to revive the taskforce and hold talks to iron out outstanding differences. With the revival of the taskforce, SLMM was understood to be weighing its options on whether to revise the form of their protests with postponing border centric protests on the cards.

border point to enforce a shutdown once more were unable to do so due to pressure from the locals.

Following the opening of the BirgunjRaxaul border point on February 8, 2015 the SLMM also postponed its programs of border blockade, strikes, and closure of government offices citing the problems caused to people due to the prolonged standoff. With flourishing informal supply chain in place, waning participation of protestors, and apparent rift between Madhesi leaders, the Madhesi leaders were already mulling over the direction of the protests on the run up-to its abrupt end.

Political mechanism formed to review provincial boundaries: The government

formed a political mechanism under the chairmanship of Deputy Prime Minister and Foreign Minister Kamal Thapa with the objective of finding solutions to the issue of redrawing provincial boundaries. The formation of the mechanism just a day before the Prime Minister’s visit to India was not viewed by the Samyukta Loktantrik Madhesi Morcha (SLMM) in a positive light and refused to take ownership of the mechanism. The issue of ownership of the political mechanism by the SLMM hinges on whether it can find a common ground with the major parties with regards to the legitimacy and Terms of Reference (ToR) of the mechanism. The Morcha has been demanding that the legality of the mechanism be ensured

Nefport Issue 24 – April 2016

7

Political Overview

by including it as a schedule in the constitution.

PM Oli’s India visit: Prime Minister

K P Sharma Oli who had repeatedly maintained that he would not make a visit to India till the end of the blockade, made a six-day long state visit to India—his maiden foreign visit as the Prime Minister— beginning February 19, 2016. The visit came at a challenging period for the special relationship that the two countries share, which had dipped to a historic low following the passage of a new constitution in Nepal and the obstructions at border points. PM Oli prior to the visit had maintained that the purpose of the visit was to mend bruised ties. However, easing of tensions in the plains, end of the blockade, and positive response from India to both; the three-point cabinet decision issued by the Nepali government on December 20, 2015 and the first constitution amendment laid the groundwork for Oli’s maiden visit to New Delhi as Prime Minister.

PM Oli met his Indian counterpart Narendra Modi and the two countries forged seven different agreements9 on various issues like: 1. MoU on utilization of NPR 27 billion (USD 250 million) grants received from the Government of India for post-quake reconstruction in four sectors, viz., housing, health, education, and cultural heritage.

2. MoU on strengthening road

8

infrastructure in the Terai region of Nepal.

3. Letters of Exchange facilitating t r a n s i t b e t w e e n Ne p a l a n d Bangladesh and operationalizing Vishakhapatnam port for Nepal’s third country trade.

4. Letters of Exchange on rail transport to and from Vishakhapatnam to Nepal and rail transit facility through Singhabad in India for Nepal’s trade through and with Bangladesh.

5. Inauguration of Muzaffarpur– Dhalkebar transmission line with initial supply of 80MW electricity to Nepal which can be gradually scaled up-to 600MW by December 2017.

6. Establishment of Eminent Persons’ Group (EPG) for comprehensively reviewing the bilateral relations and recommending measures to further strengthen ties.

7. MoU between Nepal Academy of Music and Drama and Sangeet Natak Academy of India to enhance relations in the field of performing arts.

of the erstwhile party president Sushil Koirala on February 9, 2016 who was otherwise expected to vie for the top post once again—culminated in the election of Sher Bahadur Deuba as the new president of the party. The former prime minister and senior leader of the party, Deuba, fell 11 votes short of victory in the first round of election for the top post, with senior leaders Ramchandra Poudel and Krishna Prasad Sitaula trailing behind in second and third place. In the run-off election, with Sitaula out of the race, Deuba defeated acting-President Ramchandra Poudel by a huge margin to secure party presidency.10 Following the election of Deuba as president, Shashank Koirala and Sita Devi Yadav were elected to the posts of general secretary and treasurer of the party respectively. The victory comes along with great responsibility to the newly elected president to unite different factions within the party and to recalibrate the party’s position visà-vis the changing federal structure of the country and the contemporary political realities.

Prime Minister Oli also visited Tehri Dam and inspected post-quake reconstruction work at Bhuj, in Gujarat to take stock of how the city had rebuilt itself, which could serve as a learning opportunity for Nepal.

Agreements inked during PM’s China visit: A month after his India visit, Mr.

Change of leadership in Nepali Congress: The 13th general

convention of the Nepali Congress— which came a month after the death

Docking Nepal’s Economic Analysis

Oli on March 20, 2016 embarked on his maiden visit to China in his capacity as the Prime Minister of Nepal. In the weeklong meeting, PM Oli met Chinese President Xi Jinping and his Chinese counterpart Li Keqiang. During his visit, a number of agreements, MoUs and Letters of Exchange were signed between Nepal and China which are listed below11 :

Docking Nepal’s Economic Analysis

Political Overview

1. Agreement on transit transport.

2. Agreement on construction, management, and maintenance of Hilsa river bridge connecting Humla to Tibet.

3. Agreement on economic and technical cooperation and framework agreement on the provision of mixed loans to implement Pokhara Regional International Airport Project.

4. Concessional loan agreement on Pokhara Regional International Airport.

5. Letters of Exchange on project initiation for feasibility study for oil and gas exploration in Nepal with Chinese assistance.

6. MoU between Nepal’s Ministry of Population and Environment and China’s National Development and Reform Commission regarding the provision of goods for addressing climate change.

7. MoU between Nepal’s Ministry of Industry and China’s State Administration for Industry and Commerce to strengthen intellectual property system.

8. MoU between the two countries’ Ministries of Commerce on launching joint feasibility study of China-Nepal Free Trade Agreement.

9. MoU between China Banking Regulatory Commission and Nepal Rastra Bank to extend cooperation and exchange supervisory information thereby facilitating the opening of bank branches in each other’s countries.

The agreement on transit transport paves way for Nepal to use China’s nearest port of Tianjin for third country trade. While at present infrastructural constraints and difficult terrain remain obstructions to seamless transit, the expansion of Chinese railway up-to Kerung—the only trading point between the two countries at present— slated for completion by 2020 is expected to help Nepal check its overreliance on a single country for its third country trade. 12 Apart from the aforementioned, other agreements for feasibility study on infrastructure projects, cooperation in development assistance, energy, improving trade, agreement on concluding a commercial

deal on supply of petroleum products from China to Nepal, supporting each other’s tourism, etc. were concluded.

The visit culminated with the issuance of a joint communiqué wherein China welcomed Nepal’s new constitution expressing hope that it would usher in an era of political stability and economic development in Nepal.

The two countries reiterated their strong commitment to respecting each other’s independence, sovereignty and territorial integrity, respect and accommodate each other’s concerns and core interests13 and agreed to deepen engagements among each other.

“ Outlook

The lifting of the blockade, revival of taskforce level talks, and formation of a political committee for resolution of issues of provincial demarcation has created an environment of cautious optimism in the Nepali political landscape and has restored a sense of calm in the country after months of upheaval. While issues of legality and ToR of the political committee has prevented it from taking full shape, it is imperative that the major parties and the SLMM find amicable and mutually acceptable solutions to these issues so as to lay the foundation for engaging in dialogue to settle the demarcation row.

Given the political nature of the problems surrounding the country, there is no doubt that the solutions also need to be political. Viewing the end of the blockade as the victory of major parties or government over agitating parties is a fallacious standpoint as it only serves to widen the existing polarization and does not, in any way, lead to the resolution of outstanding issues. The positive momentum created by some of the developments in the last several weeks like the lifting of the blockade and the return of a sense of calm in the plains need to be taken forward in order to find a sustainable settlement to contentious political disagreements. If the contentious issues are not resolved immediately and sustainably, the country could brace for another period of instability in the days to come.

Nefport Issue 24 – April 2016

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INTERNATIONAL ECONOMY Uncertainty looms at large, whether be it with China’s fragile economic state, the EuroUK Brexit debates or the swinging oil prices.

China targets 6.5-7% growth: China

has targeted a 6.5% - 7% economic growth for 2016. Previously, China grew at 6.9%; the lowest in the last quarter century. While, International Monetary Fund expects China to grow by 6.3%,14 experts hold much more skeptical view with estimates of growth at 4%.15 This skepticism has risen due to poor economic performance in 2015; which saw stock market indexes slump by more than 30% and continuous fall in manufacturing sector;16 a consequence of China’s decision to move towards consumption and services led economy rather than exports and investment.

The recent economic data shows further cause for concern as two major official and private indexes- Purchasing Manager’s Index (PMI) and Caixinsponsored PMI, which measures the country’s manufacturing activity marked worsening contractions in the sector.17 Additionally, weakening Europe and emerging economies have reduced demands for Chinese exports, putting the Chinese government in

10

a predicament; with money inflow decreasing which especially has dire implications on China’s debt burden of NPR 248.4 trillion (USD 2.4 trillion), equivalent to 40% of its GDP. UK’s EU referendum: Coming June, UK is set to hold a referendum on whether to remain a member of EU or leave, what has been dubbed as ‘Brexit’ (Britain + exit). Proponents of Brexit argue that EU imposes numerous rules on business and charges billions of pounds a year on membership fees with little reciprocation. Moreover, they have also brought forth the issue of “free movement” i.e. non-requirement of visa for living in another EU country, focusing on the need to take back full control of their borders and reduce immigrants. On the other hand, proponents of EU membership believe that being a part of EU exposes UK to easily accessible EU trade partners and the flow of mostly young and keen to work immigrants, which fuels economic growth and help pay for

Docking Nepal’s Economic Analysis

public services.18 If UK were to exit EU, the implications could be far-reaching not just in the economic sphere but also politically. This could bring up issues on trade negotiations among the nations as UK exports is significantly dependent on EU; as well as some EU nations like Ireland and Germany which heavily exports to UK. Similarly, arguments that Brexit could also rekindle protectionist policies in the EU have surfaced;19 European officials have looked down upon Brexit as a potential trigger in spawning domino effect, encouraging further splits, on other Eurosceptic parties.20 Oil price swings: Crude oil prices fell

by as much as 70% during the course of 20 months; from NPR 12,423 (USD 115) per barrel in June 2014 to NPR 3,781 (USD 35) per barrel in February 2016. A mix of both supply and demand side factors have been identified as the reasons behind the dip. On the supply side, producers of oil have continued raising their production year after year

Docking Nepal’s Economic Analysis

International Economy

Union budget 2016-17 highlights The finance minister of India presented the union budget for FY 2016/17 on February 29, 2016 with an estimated expenditure of NPR 31.6 trillion (USD 292.9 billion), a 10.8% rise above the revised estimates of last year. The budget highlights the government’s plans to boost investment especially in sectors like farm and rural sector, social sector, infrastructure sector employment generation and recapitalization of banks; while maintaining fiscal consolidation with estimates to limit fiscal deficit at 3.5% of GDP, down from 3.9% in 2015/16.The budget also envisages GDP growth of 7.6%.23 Keeping rural and farm development at the fore, the budget has brought new initiatives such as Start-Up policy and continued previous like “Make in India” with an outlook on improving different sectors of the economy.24 The budget plans to boost rural infrastructure by NPR 1.37 trillion (USD 12.7 billion), with 89 new irrigation projects, increased investments in rural roads for farmers to access the market, and providing liquid petroleum gas for Below Poverty Line families.25 Although hailed as a “budget for farmers”, other aspects of the budget such as taxation, are considered to be complicated; with numerous tax proposals appearing to be unfavorable to the “Make in India” initiative. Moreover, the budget also lacked incentives for both domestic and foreign investors in the manufacturing sector, which would otherwise have had high employment absorption. 26 With regards to Nepal, the budget raised a few eyebrows as it cut the aid to Nepal by 40% compared to last year, from NPR 4 billion (USD 38.8 million) to NPR 3 billion (USD 27.7 million). Low absorptive capacity, poor aid utilization by the Nepali government, and bleak progress by the reconstruction authority were cited as reasons behind the reduction in aid.27

with Canadian and Iraqi oil producers marking an increase in their exports; whereas, with US stepping up its domestic oil production, exporters like Saudi Arabia, Nigeria and Algeria are having to compete in the emerging Asian markets, forcing the prices downwards. Meanwhile on the demand side, the declining economic conditions in Europe and China are driving the aggregate demand downwards; along with, increase in use of energyefficient vehicles.21 For oil exporters, the tumbling prices threatens to collapse the entire economy, especially those economies which have sustained themselves solely on oil exports like Azerbaijan, Venezuela and Nigeria; whereas, for a net-importer of oil

such as Nepal, lower oil prices could prove to be a stimulus for economic growth.22 In any case, the low oil prices are not expected to last much longer as Organization of Petroleum Exporting

Countries (OPEC) has put certain oil productions on hold. Prices have begun to rise, though not consistently, reaching close to, NPR 4,537 (USD 42) per barrel of crude oil.

“ Outlook

It has been time and again iterated that Nepal is insulated from the global events.

However, with the fall in oil price impacting gulf nations, Nepal has been directly affected with falls in the number of workers going abroad. Remittances are likely to take a hit with gulf countries cutting down on their foreign employment opportunities; further compounded by Malaysia, one of the major migrant destination, opening employment opportunities for other nations in sectors where Nepali workers previously had a monopoly. Although fuel prices in Nepal did drop by about 5-6%, the benefits could not be derived for about 3 months owing to the blockade. The international oil prices are expected to rise which would be reflected in Nepal’s prices quick enough.

Nefport Issue 24 – April 2016

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MACROECONOMIC OVERVIEW The past several months have been strenuous to the economy. With inflation at a seven-year high, sharp decline in trade during the months when border points remained obstructed, and decline in both revenue and expenditure of the government, macroeconomic indicators point towards a grim outlook for the country this fiscal year. Nonetheless, the country is hopeful of covering some lost ground in terms of lost revenues and contracted trade volumes in the final few months of the fiscal year given that the border disruptions lifted and supplies gradually normalized.

A lot of this hope, however, remains pinned upon how well different sectors of the economy recuperate from the crisis.

months of FY 2015-16, the Consumer Price Index (CPI) hovered fairly around 7%. However, post mid-September 2015; i.e. the advent of the blockade, continuous steep rise in inflation could be noted as shown in Figure 1 with CPI levels reaching double digit figures, at 10.4% in mid-November 2015 rising up-to 12.1% in mid-January 2016. This increase, for the most part, is accounted by the supply crunch resulting from border disruptions in the Terai-Madhes region, which put an upward pressure on prices especially on food and beverage commodity groups. With the blockade easing out, inflationary pressure on prices is expected to ease.

12

Figure 1: Year-on-year inflation measured by Consumer Price Index (CPI) for six months for FY 2014-15 and 2015-16 Inflation measured by CPI (in %)

Inflation levels: For the first two

Docking Nepal’s Economic Analysis

12.1

11.6 10.4

2014-15 7.6

7.5 6.9 mid-Aug

8.3

7.2 mid-Sep

2015-16 7.2

7

6.8

mid-Nov

mid-Dec

mid-Jan

7.5 mid-Oct

Review Period Source: Macroeconomic Situation of Nepal (months one to six), Nepal Rastra Bank

Docking Nepal’s Economic Analysis

Macroeconomic Overview

Import-Export and trade deficit scenario: Given Nepal’s international

trade occurs almost exclusively through India and that Nepal-India border points remained disturbed owing to the Madhes protests, movement of goods to and from India was severely curtailed; as a result imports and exports of merchandise marked stark falls in the review period. Compared year on year to the previous year, the imports fell by as much as 36.8% in mid-November 2015; while, exports fell by 29.1% in the same time frame.

Nonetheless, with Nepal’s import bill far exceeding the exports, the drop in imports helped in improving the trade balance, reducing the deficit by

Change in Consumer Price Index (in %)

in the inflation wedge, measured as the difference between the year-onyear change in Consumer Price Index (CPI) of Nepal and India, in the first sixth months of the current fiscal year as shown in Figure 2. High inflation rates in Nepal; owing to the impact of the supply crisis, against the fairly stable inflation rates in India during these months contributed in widening the wedge. As shown in Figure 3, the inflation wedge in the same period in the last fiscal year had been significantly narrower, with it declining between mid-November and mid-January.

Figure 2: Year-on-year percentage change in CPI in Nepal and India and the inflation wedge in the corresponding period for FY 2015-16

8.3

7.2

6.9 3.7

mid-Aug

12.1

11.6

10.4

4.4

5.0

mid-Sep

mid-Oct

5.6

5.7

mid-Dec

mid-Jan

5.4

mid-Nov

Review Period Nepal

India

Inflation wedge

Source: Macroeconomic Situation of Nepal (months one to six), Nepal Rastra Bank

Figure 3: Year-on-year change in inflation wedge (based on CPI) between Nepal and India in FY 2014-15 and FY 2015-16 Inflation wedge (in %)

Inflation wedge between Nepal and India: There has been a marked rise

6.4 6 3.2

5 2.8 1.1

-0.2 mid-Aug

mid-Sep

3.3

2.8

2 mid-Oct

mid-Nov

2.1

mid-Dec

1.6 mid-Jan

Review Period 2014-15

2015-16

Source: Macroeconomic Situation of Nepal (months one to six), Nepal Rastra Bank

Nefport Issue 24 – April 2016

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Macroeconomic Overview

Change in merchandize import/export (in %)

Change in merchandize import/export (in %)

Figure 4: Year-on-year percentage change in merchandize import (left) and export (right) in the review periods in FYs 2014-15 and 2015-16

7.2

-17.5

-25.7 -31.9

-36.8

-32

2014-15 2015-16

-3.9

-15.2

-27.2

-25.4 -29.1

Review Period

-29.1

Review Period Source: Macroeconomic Situation of Nepal (months one to six), Nepal Rastra Bank

Change in trade balance (in %)

Figure 5: Year-on-year percentage change in trade balance in the first six months of FYs 2014-15 and 2015-16 29.1

24.9

26.1

16.6

19.1

14.5

8.7

mid-Aug

mid-Sep

mid-Oct

mid-Nov

-17.8 -32.8

-37.8

mid-Dec -32.4

mid-Jan -25.5

2014-15 2015-16

Review Period Source: Macroeconomic Situation of Nepal (months one to six), Nepal Rastra Bank

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Docking Nepal’s Economic Analysis

Docking Nepal’s Economic Analysis

Macroeconomic Overview

expenditure till mid-February 2016 amounted to NPR 210.88 billion (USD 1.95 billion), which is a little more than 25% of the expenditure target (refer Figure 7). In the seven months of this fiscal year, spending has been highest in recurrent expenditure which has crossed the 30% mark while capital expenditure remains sluggish with just around 9% having been spent so far (refer Figure 8). The poor capital expenditure utilization could be attributed to the blockade as works stalled due to shortage of fuel and construction materials.

200

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0 mid-Aug

mid-Sept mid-Oct

mid-Nov

mid-Dec

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mid-Feb

Review Period Revenue collected (In billions)

Revenue as % to target (in %)

Source: Macroeconomic Situation of Nepal (months one to six), Nepal Rastra Bank

Figure 7: Growth in government expenditure vis-à-vis the targeted expenditure in FY 2015-16 250

100 90 80 70 60 50 40 30 20 10 0

200 In NPR billions

Government Spending: Government’s

In NPR billions

Revenue:

In %

Up until mid-February 2016, the government collected NPR 173.97 billion (USD 1.6 billion) which figures to about 36.6% of the targeted revenue collection (refer Figure 6). The tax collection was significantly affected as a result of the blockade where customs and excise taxes, which combined made up 31% of the revenue in the previous year, directly dropped while Value Added Tax (VAT) and income tax also declined. It is highly unlikely that the government will meet its targeted figure given the revenue trickled for almost four and a half months.

Government

Figure 6: Growth in revenue collection vis-à-vis the target collection in FY 2015-2016

150 100 50 0 mid-Aug

mid-Sept

mid-Oct

mid-Nov

mid-Dec

mid-Jan

In %

37.8% in mid-November 2015 (refer Figure 5).

mid-Feb

Review Period Government Expenditure (In billions)

Expenditure as % to target (In %)

Source: Macroeconomic Situation of Nepal (months one to six), Nepal Rastra Bank

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Macroeconomic Overview

Figure 8: Budgetary outlay trend over the seven months of FY 2015-16

Budgetary Outlay (in %)

35 30 25 20 15 10 5 0 mid-Aug

mid-Sep

mid-Oct

mid-Nov

mid-Dec

mid-Jan

mid-Feb

Review Period Recurrent

Capital

Financing

Total

Source: Ministry Wise Budget Expenditure Status for various months, Financial Comptroller General Officer

However, the government has been known for its delays in capital expenditure, spending just 70% of the allocated budget on average. While inability to spend is not a new challenge to budgetary implementation in Nepal, the spending woes this year were compounded by the effects of an almost six-month long unrest in the Terai-Madhes region and more than four-month long blockade of border points. In any case, there is a marked trend of the government resorting to eleventh hour spending; where, according to the Nepal Portfolio Performance Review 2015, in FY 201415 nearly 60% of the capital expenditure and 42.4% of the total expenditure was spent in the last quarter.

16

“ Outlook

With the border blockade now over and supplies gradually normalizing, the inflation levels will come down in coming months. However, with significant decline projected for major agricultural products, prices are unlikely to fall below pre-blockade levels at least for the next quarter. Similarly, trade volumes, both in terms of imports and exports have started increasing which would mean that in the coming months, the trade deficit which had temporarily contracted during the blockade will start ballooning once again.

With trade slowly edging closer to normal volumes, government revenues will start swelling up with rise in collection of customs duty—one of the largest contributors to state coffers. Slow capital spending, which is a recurrent challenge in Nepal has been further compounded by the economic crisis; with only four months remaining in this fiscal year, it is once again certain that Nepal is going to miss expenditure targets, this time by even greater margins despite the fact that the government had announced this year as ‘Budget Implementation Year’.

Docking Nepal’s Economic Analysis

Docking Nepal’s Economic Analysis

Sectoral Review

SECTORAL REVIEW AGRICULTURE

Paddy production dips: The cultivation

of summer crops like paddy and millet, have been fraught with multiple challenges this plantation season and are projected to witness a significant drop in production. According to the preliminary production projections of summer crops, released by the Ministry of Agricultural Development (MoAD), the drop in paddy output is likely to be significant with a 10.22% projected fall in production, i.e. a drop of around 490,000 metric tonnes. As paddy contributes 21% of total agricultural production,28 a fall more than a tenth

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4.6

0

4.4

-5

4.2

-10

4 3.8

-15 2013-14

2014-15

2015-16

Percentage change in production

Figure 9: Paddy production volumes and percentage change in its production over three consecutive fiscal years Production (in million metric tonnes)

The agriculture sector which contributes almost one-third of the country’s total gross domestic product (GDP) has been adversely affected by multiple factors beginning from the delays in plantations due to the earthquake, less than average monsoons, shortage of chemical fertilizers and fuel due to disruptions at border points, and poor winter rain in the recent past. The consequences of such adverse situations are already manifesting in the form of sharp reduction in paddy output and a projected loss in production of wheat.

Apart from production related issues, farmers have had to deal with issues relating to harvesting, transporting yield, and challenges related to getting better prices for their products.

Fiscal Year Production

Percentage change in production Source: Ministry of Agricultural Development

in production will have visibly negative impacts on the agriculture sector as farm incomes will dip and food imports will rise. Along with drops in production, there have also been drops in the acreage and productivity of paddy crop.29 This is the second consecutive year that the country has witnessed a drop in paddy production. Figure 9 shows the trend of paddy production in the last few years. Shortages in fuel has affected both; irrigation in places which depend upon lift-irrigation and ground water irrigation as they require diesel operated generators during power cuts, and harvesting. The drop in production

will result in increased import of rice and put further pressure on the food security situation of the country.

Production estimates of other summer and winter crops: Among the

summer crops, production of millet is also expected to drop by around 2%.

However, production of Maize; which contributes to7% of total agricultural production, is expected to witness a growth of 4%. Production of another summer crop, buckwheat is also expected to increase by around 7.1%.30

Wheat, a major winter crop, is also projected to witness a sharp drop in production this fiscal year, with 6%

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Sectoral Review

Figure 10: Wheat Production status in the last three fiscal years and projections for the current fiscal year

India’s restriction on paddy seed exports hurts rice mills in Nepal:

Given that cost of production of paddy is lower in India, Nepali rice mills have thrived on the business of importing paddy seeds, and processing, packaging and selling the final product in the Nepali market. At present 5%

Effective from October 7, 2015, India has made changes to its foreign trade policy restricting the export of paddy seeds citing shortage of food grains.

This has come as a blow to local rice mills in Nepal, especially in the Terai districts such as Bara and Parsa which alone have over 250 rice mills and depend upon imported paddy seeds from India for producing processed rice sold in the Nepali markets.32 Paddy output of Nepal is reportedly enough to operate the rice mills in the country only for three months.

Meanwhile paddy output this fiscal year is projected to decline significantly which will further hamper production of rice mills. Interestingly however, India has not put restrictions on the export of rice to Nepal.

18

Wheat Production (in million tonnes)

projected drop in production by the Department of Agriculture. Poor winter rain across the country, coupled with shortage of and delays in distribution of chemical fertilizers took toll on wheat production.31 Earlier, the White Paper issued by the Finance Minister on the state of the economy projected a loss of up-to 30% in production of wheat in absence of regular supply of chemical fertilizers. Apart from wheat, other winter crops like lentils and barley could also witness a drop in production owing to the aforementioned unfavorable conditions.

Figure 10 graphically represents the change in wheat production in the last few fiscal years and the projection for the current year.

1.97 1.88

1.85

1.72

2012-13

2013-14

2014-15

2015-16*

Fiscal Year Source: Ministry of Agricultural Development *Figure for FY 2015-16 computed by author based on official projection

agricultural improvement service charge is levied on import of paddy seeds which is lower than that for rice which stands at 8%.33 With the restrictions on export of paddy seeds from India to Nepal, investments worth

“ Outlook

The last quarter has not been very encouraging for the agricultural sector. Given that two-thirds of the country’s population is engaged in agriculture, this is likely to have significant impact on household income and could further exacerbate the poverty situation among farmers who are already reeling under the devastating impact of the earthquakes and the blockade. There is grave threat that farmers could get caught in a low income-low investment trap which can have debilitating impacts in terms of increased rural/farm indebtedness.

The decrease in farm production would mean that the country’s food security situation will likely worsen. Increased imports of food grains and other crops in such a scenario will lead to a spike in import bill and worsen trade deficit—the growth of which had been slowing down during the supply crisis on account of significantly contraction in imports.

Docking Nepal’s Economic Analysis

Docking Nepal’s Economic Analysis

Sectoral Review

NPR 10 billion (USD 92.5 million) in rice mills are at stake, and along with it the employment of people associated with such mills.34 Farmers’ commission in order to boost agriculture: The farmers’

commission was envisaged by the Agricultural Development Strategy (ADS) as a high level fully authorized and permanent commission for advancing farmers’ rights. The ADS had also categorically stated that the specific Terms of Reference (ToR), composition, and regulation of the commission will be formulated in the early phase of implementation of the strategy. The government is now set to form the commission through a regulatory order with the proposal soon to be tabled at the cabinet. The commission is envisioned to contribute significantly in terms of protecting farmers and their rights, improving productivity, improving returns from agriculture as well as promoting sustainable agricultural practices in the country.35

Fuel shortage and low prices hit sugarcane farmers Sugarcane farmers in the country have had to face multiple challenges this season.

Lower prices, shortage of fuel and the resultant higher transportation fares, proliferation of middlemen, delays in payments, and other such challenges have all affected sugarcane farmers.

The issue of sugar mills not buying sugarcane from farmers crops up as a significant challenge to farmers almost every season. This season however, sugar mills were forced to halt or slow down operations due to shortage of diesel to operate crushers.

Given that the mills have to operate crushers on diesel bought from the black-market at exorbitant rates, their reluctance to buy sugarcane from farmers at higher prices is likely linked with profitability issues.36 For the farmers, this poses numerous problems.

First of all, the floor price for sugarcane has been set at NPR 448 (USD 4.14) per quintal, which is lower than the NPR 461 (USD 4.26) price set last year. Secondly, due to the shortage of fuel, farmers are forced to pay much higher transportation costs to get their produce to the mills, which are not readily buying all of their produce.37 This has forced the farmers to sell their products at much lower costs to middlemen who come to collect sugarcane at their farms and pay them in cash instantly. Instances of farmers selling sugarcane at even NPR 300 (USD 2.77) per quintal which is significantly lower than the floor price have been reported in the media.38 Faced with challenges like higher transport cost and delays in payments from sugar mills, farmers have resorted to selling sugarcane even at such low prices this season. While sugar mills have denied using middlemen to procure sugarcane from farmers at rates lower than floor prices, it is difficult to completely rule out such a possibility. Meanwhile due to lower transportation costs and fewer hassles in acquiring payments, Nepali farmers are now being lured into selling their products to Indian mills.39

ENERGY The past few months have witnessed severe shortage of petroleum products; primarily petrol, diesel and LPG, owing to the Madhes agitations’ and subsequent border obstructions.

Apart from disrupting everyday life, the shortage has had detrimental impacts on energy security of Nepal, especially concerning hydroelectricity infrastructure constructions. Although the blockade has been lifted, Nepal Oil

Corporation (NOC) -the state owned enterprise largely responsible for supply and distribution of fuel, was unable to normalize the situation for almost a month, which sparked widespread criticisms against the corporation.

Regrettably, with political instability, foreign investors have been discouraged, and projects have been forced to prolong their completion dates. Nonetheless, the ensuing deficit in electricity supply

is expected to be closed down through the declaration of “energy emergency”.

Delayed end to fuel crisis: Despite the blockade having ended in first week of February 2016, the supply and distribution of petroleum products failed to normalize even a month after. While supply eased significantly, it continued to remain short of demand, with Nepal Oil Corporation (NOC) reporting

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Sectoral Review

that Indian Oil Corporation (IOC) just supplied 70% of the required fuel volume. Prior to this, Nepal received just 30% of the required amount in the course of four and a half months of blockade. In regard to Kathmandu, NOC has claimed that the supply of fuel had been increased by 150 KL of the daily requirement from 800 KL to 950KL post blockade but distribution normalized only in midMarch. Although this sparked suspicions of misconduct against NOC, instances of hoarding could be noted leading to a spike in the demand for fuel compared to normal times; as a consequence, despite NOC’s claimed increased supply, the demands seemingly would not be met.

Nonetheless, with fuel distribution to vehicles slowing down which were apparent from the long lines in petrol stations despite claimed increase in supply, there were allegations against NOC getting involved in unlawful activities, particularly involving Birat Petroleum.40 On a side note, talks of importing fuel from China during the 70% IOC supply were also underway,41 which have gained renewed push post P.M Oli’s China visit.

BPPL given another import approval amidst supply ease: During the

blockade and the ensuing fuel shortage, the government made arrangements to temporarily allow private firms to import fuel without fulfilling basic requirements such as, license fee, paid up capital, and storage facilities for up-to 6 months.

Following this, Birat Petroleum (BPPL) was awarded the supply tender contract to import fuel by NOC along with 34 others; which soon fell into controversy,

20

leading to BPPL pulling out of the contract. BPPL then went on to import 97 KL of petrol on its own, distributing it through NOC’s petrol pumps at a rate of NPR 190/liter. With supplies beginning to ease, BPPL was again given approval

by Department of Supply Management and Consumer protection, NOC and few other governmental offices recently to sell 132 KL of petrol imported from India at NPR 150 per liter –51.5% higher than the market price through NOC pumps.42 This move by the government and NOC has been viewed as outright organizational black marketing. Prior to supply completely easing NOC was alleged to have controlled the supply to compel consumers to buy fuel imported

by BPPL.43 Energy emergency plan: Ministry of Energy has declared an energy emergency under the theme of ‘Energy Crisis Elimination Decade’, to make the country self-reliant on energy. The emergency aims to generate 10,000MW electricity and is expected to last for a period of three to five years, with its activity expected to continue for a decade. Expected course of action include reducing load shedding by using alternative energy sources like sun and wind, and importing electricity from India to meet the present demand. The prime focus, however, is on accelerating the reconstruction and construction process of the hydropower projects, developing at-least one storage type project, and upgrading cross-border transmission lines. The government also aims to amend few laws that create hindrance for project development.

Docking Nepal’s Economic Analysis

This is the third time within a span of eight years that “energy emergency” has been declared. The 2008 energy emergency failed to amount to anything as the government could not formulate concrete plans and programs,44 whereas the four and a half yearlong 2011 energy emergency fell significantly short of its targets – one of the objective was to generate 2,500MW but currently at peak capacity the power generation stands at just 800MW.45 The current emergency aims to generate 12.5 times the present peak capacity power generation, 33 times the dry season capacity, within a decade.

Dhalkebar-Muzaffarpur transmission inaugurated: One of the biggest cross-

border transmission line project, the Dhalkebar-Muzaffarpur electricity transmission line has been inaugurated.

This transmission line extends 140 km, from Dhalkebar in Nepal to Muzaffarpur in India, and can hold a capacity of up-to 400kV. The project initially took off in early 2007 when Nepal Electricity Authority (NEA) and Infrastructure Leasing and Financial Services construction signed the MOU, with power scheduled to be supplied by mid-2015.46 However, it was not until mid-February 2016 that NEA had started conducting final test on the transmission line. Prior to the final tests, an agreement was signed between NEA and National Thermal Power Corporation Vidyut Vyapar Nigam (NVVN) to supply electricity to Nepal at NPR 5.504 (USD 0.05) per unit. Initially, India will start supplying up-to 80MW of electricity to Nepal, but NEA plans to increase its capacity within the next six months after which 200MW can be imported; by

Docking Nepal’s Economic Analysis

Sectoral Review

2017 NEA expects to import 600MW.47 Despite the transmission line being ready for operation, there had been no headway, up until mid-March, in the 80MW electricity that was expected to be imported mid-February and estimated to reduce load shedding by two hours.

Foreign investors’ dire straits:

Norwegian company Statkraft decided to withdraw from the development of the Tamakoshi-III Hydroelectricity, expected to generate 650MW electricity which would have been exported to India as well as other neighboring countries.

The company cited lack of viable power off-take options, lower electricity price forecasts, insufficient transmission capacity and absence of necessary policies and regulatory framework for power trade, as the major factors for deciding to pull out of the project.48 The company had been attempting to work on constructing the hydropower plant for over a decade, spending NPR 2.1 billion (USD 20 million) in the process.49 However, the company pulled out just as it was about to discuss the project development agreements with Investment Board Nepal on figuring out how to invest over NPR 162 billion (USD 1.5 billion) - one of the biggest foreign direct investment projects in Nepal. 50 Prior to Statkraft, there have been previous instances of foreign investors pulling out; the recent being Australian Snowy Mountain Engineering Corporation ejecting from the export oriented 750MW West-Seti hydropower project in 2012 after two decades of struggle with bureaucracies. According to private hydropower developers, local politics and political leaders along

with co-ordination among the parties involved, lack of transmission lines and Power Purchase Agreement (PPA) were few of the major disincentives to doing business. Currently, a hydropower project has to deal with 7 ministries and 23 governmental departments along with complying with 36 different acts each with their own terms and conditions.51 Lighting up the streets: The Ministry of Federal Affairs and Local Development has issued a circular to the Office of Kathmandu Metropolitan City (KMC) as well as all sub-metropolitan cities and municipalities, directing them to release a call for proposals from prospective stakeholders for ‘Public Participation Based Solar Street Light Programme’. The program aims to reduce load shedding in urban and rural settlements by installing solar lights and is expected to save at

least six megawatts of electricity. In KMC the government will bear 60% of the cost, 25% by local bodies and 15% by consumers. In highly-deprived settlements the government, local bodies and consumers will bear 70%, 20% and 10% of the total cost respectively. In other regions the government will make an investment of 65% while local bodies would bear 20% and consumers 15%.52 Currently, certain locations within the valley does have solar powered street lights, however, of the 1,600 units 500 are out of order. Such an instance highlights the non-maintenance and negligence of infrastructure by the government;53 and further raises doubts of the proposed plan meeting with the same fate.

Promotion on solar energy: The

Alternative Energy Promotion Centre (AEPC) has proposed a plan “Urban Solar

“ Outlook

The recent fuel crisis showcases one of the key flaws in depending upon only a single source for all fuel requirements. Perhaps this time around, given that this is the third instance of fuel crisis occurring due to border disruptions, the government ought to break from its habitual forgetfulness of pushing forward alternatives post-crisis. The government must commit to importing fuel from China and engage in sustainable, longer term business transactions, rather than piecemeal deals, even though the costs may be comparatively higher to imports from India. However, to fully ensure energy security in terms of fuel, the monopoly of NOC in supply and distribution must be broken, while encouraging domestic and multinational fuel companies to compete for the market.

With regards to hydropower, the success of upcoming hydropower projects is pivotal to encouraging investments, which of late has been largely tarnished. The opening up of the borders and mounting pressure on the government to complete hydropower projects certainly would pace up the construction and operation of upcoming projects.

Nonetheless, the extent to which “energy emergency” delivers on its promises remains to be seen, as the momentum gathered on the current crisis would likely fade with time.

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Sectoral Review

Energy Subsidy and Loan Mobilization Directives-2072” to increase production of renewable energy in urban areas of Nepal. The plan includes mandatory installation of solar roof panels in the new buildings being constructed so as to partly reduce the load on the main electric grid; houses that do not comply with the standards will not receive building completion certificate. New institutional, governmental and commercial buildings are required to generate 25% of their total energy requirement or 1,500 watts, whichever is higher; while, residential buildings are required to generate at least 500 watts. To incentivize the public, the government plans to introduce subsidy schemes where households with solar capacity of over 500 watts are entitled to receive NPR 15,000 (USD 139) and concessional loan at 2.25% interest rate.54

INFRASTRUCTURE Infrastructure development remains a major challenge for Nepal. Despite the government’s efforts to provide increased access to various infrastructure services, Nepal’s infrastructure is yet to mark a significant transformation where the projects often gets stalled owing to various political, local, managerial, and other reasons. Nonetheless, infrastructural developments are taking place or in the pipeline.

Blueprint finalized for the New Bus Park: Blueprint for the New Bus Park in

Gongabu, Kathmandu has been finalized recently. On August 10, 2015 Lhotse Multipurpose Private Ltd and the Office

22

of Kathmandu Metropolitan City had reached an agreement to upgrade the New Bus Park to international standards in four years’ time. Apart from the bus park, commercial complex, hotels, restaurants, lockers and washrooms for passengers will be extra features within in the premise. The capacity of the bus park will be increased from 450 buses at present up-to 800 buses after its completion. The company is bound to pay NPR 9.8 million (USD 90,715) per annum during their contract period to the metropolis and also must hand over the bus park after 45 years of its operation.55 Himalaya, the biggest FDI for Nepal’s aviation sector: Himalaya Airlines, a

Nepal-China joint-venture company, will be launching its international operation with an Airbus A320 jetliner. The company has a paid-up capital of NPR 2.7 billion (USD 24.9 million) and is the biggest foreign direct investment (FDI) from China in Nepal’s aviation sector. The scheduled date for the carrier’s first aircraft land at Tribhuvan International Airport (TIA) is on March 9 and its commercial operations will formally start within March-end after it gets the approval by the India airport authority for its link to various Asian and Middle East cities.

At present, Civil Aviation Authority of Nepal has sent its team to China for inspection of the aircraft and also to complete necessary documentation.56 NAC finally approves four Chinese aircrafts: Four Chinese aircraft that

was kept on hold by Nepal Airlines

Docking Nepal’s Economic Analysis

Corporation (NAC) regarding its problems with early models, has finally been agreed by NAC but with key five conditions. Proposal has been submitted by the Tourism Ministry with NAC’s conditions to the Cabinet for its aircraft procurement process. The company also reduced the training package for the Nepali pilots by 76.2% to NPR 2.05 million (USD 18,976). The Cabinet had already approved the government to sign loan and grant agreements with China to procure six aircraft for the national flag carrier on November 14, 2013.57 Birgunj-Pathlaiya road section to be upgraded as per international standards: The two-lane Birgunj-

Pathlaiya road section, which is seven meters wide, will soon be upgraded to six lanes as per international standards making it five times wider. This is one of the main connecting trade roadways between Nepal and southern neighbor India with nearly 70% of the country’s cargoes going through this road section

“ Outlook

Infrastructure is one of the key drivers, the dearth of which has led to slow economic growth in the country. More often than not, people are skeptical to a large extent about the projects that the government endeavors. Therefore, the core issue here is almost entirely regarding the execution doubts.

Moreover, safety and sustainability issues also crop up; for instance, having acquired Chinese aircrafts, implementation of regular checks and maintenance remains to be seen.

Docking Nepal’s Economic Analysis

Sectoral Review

and about 1000 of vehicles passing through on daily basis; as a result, this stretch often faces traffic congestion during peak hours. The Department of Road conducted a feasibility study prior and has started working on the road designs. This road expansion project will not only ease transportation between the two countries, but also help country’s economy growth.58 Strikes delay the construction of broad gauge railway: Continuous

Madhes agitation and nearly five month long blockade at border entry points has delayed the construction of broad gauge railway from Bardibas in Nepal to Jaynagar in India, which is being monitored by an Indian contractor company Eruction. The contractor stated that completion of the project within the stipulated time is beyond their capability as their work had been kept on hold because of the Madhes agitation.

According to the project officials, the first phase has been completed; the second phase in progress whereas the thirdphase construction works will take more stipulated time than anticipated.59

Government finally brings in earthquake-resistant house model:

The Government has suggested 17 earthquake-resistant house models for rural areas. The Design Catalogue for Reconstruction of Earthquake-resistant Houses issued by the Department of Urban Development and Building Construction (DoUDBC) provides technical details such as 3D views of the design floor plan, elevation and sections, construction of houses

with varying costs, sizes, layouts and typology. As the cost materials vary from place to place, the Government has not been able to finalize the total estimated cost of the houses.60

Information & Communications Technology

was conducted by the Ministry of Irrigation to construct a barrage on the Sapta Koshi River, which will help to irrigate farmlands in Saptari, and surrounding four districts, and use the water resource effectively. The project will take five years for its completion and is estimated to cost NPR 8 billion (USD 74 million) as per the study. A tunnel will also be constructed to carry water to Saptari, Siraha and Udaypur districts; while, irrigation canal of Sunsari and Morang will be upgraded.61

The growth in telecommunications sector has been impressive in the past couple of years; with total subscription (including fixed line, mobile and others) and penetration rate nearly doubling in the last five years. Similarly, the penetration rate for internet has grown by nearly 32% where out of 100 people 46 have access to internet as opposed to just 14 in the same time frame. There have been ground breaking developments, with Axiata and TeliaSonera engaging in business transaction at amounts previously unprecedented in Nepal’s telecom sector. However, along with developments, risks have also increased as instances of cybercrimes have risen.

Construction of first animal-friendly road to begin in Chitwan: For the first

Nepal Telecom restores 335 quake hit towers: A total of 350 BTS (base

Barrage to be built for irrigation on the Sapta Koshi: An assessment

time, Nepal will be constructing an animal friendly road along the NarayangadhMugling road, which is well connected with the Chitwan National Park and crosses through Barandabhar forest area. The World Bank will pledge NPR 900 million (USD 8.3 million) for the construction of this animal friendly road and will be completed by April 2017.

The project includes building of 2.8-km road at Aanpatari Check Post and 7.5km road at Jugedi and Ramnagar, which will provide convenience for the animals to drink water from the Narayani River as well as provide easy access for elephants along with other animals to cross the road, without meeting with an accident.62

transceiver station) towers of Nepal Telecom were damaged by the April 25 earthquake. Out of the 350 towers, Nepal Telecom (NT) has been successful in restoring 335 towers. A total of 250 towers had been damaged in Kathmandu, while 100 towers elsewhere in the country were damaged. The repair work on the towers started in August 2015.63 New low-height and lightweight BTS towers were imported by Nepal Telecom to replace the old heavy towers.

At present Nepal Telecom maintains more than 4,000 BTS towers across the country, including 430 in Kathmandu.

The company plans to add 77 more towers in Kathmandu to improve the service quality.

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Sectoral Sectoral Review Review

to remove presence from the Nepali market in September 2015, TeliaSonera in December 2015 agreed to sell 60.4% of its direct ownership in the Nepali telecom operator Ncell to Axiata; for NPR 111.3 billion (USD 1.03 billion) on a cash and debt free basis. Axiata is one of the largest telecommunication groups in Asia. The divestment includes of two dealings which are conditional on each other. At the same time, TeliaSonera has decided to dissolve its economic interests in the 20% of local ownership and receive approximately NPR 5.2 billion (USD 48 million).64

Cybercrime increasing in the country:

According to the Metropolitan Police Crime Division (MPCD) of Nepal, around 361 instances of cyber-crimes have already been reported in the first six months of the current fiscal year (FY 2015-2016). In the FY 2014-2015, the number of cyber-crime cases reported by the victims stood at 300, whereas there were only 91 such cases reported in FY 2013-2014. Majority of these cases are centralized in Kathmandu valley and the Central Development Region.

Police investigators in the country have confirmed that they deal with up-to 20 cases related to cyber-crime on a daily basis. As per the statement of Deputy Inspector General (DIG) of Nepal Police, there is a lot of cybercrime that remains unrecorded in the mid-west and the far-west as the case hearings on cyber-related issues, so far, are only conducted by the Kathmandu District Court.

24

Figure 11: Number of cyber-crime cases reported to the MPCD Number of reported cyber crimes

TeliaSonera selling stakes in Ncell to Axiata: After announcing its plans

361 300

91

2013-2014

2014-2015

2015-2016*

Fisal Year Source: Métropolitain Police Crime Division (MPCD), News Sources *In the first six months of FY 2015-2016

N e p a l ’s r a n k s 1 3 6 t h i n I C T Development Index 2015: International

Telecommunication Union (ITU) published the 2015 Global ICT Development Index (IDI) in November 2015. According to the publication, Nepal’s ranking in ICT Development Index 2015 has been progressive but rather slow. The report published by the ITU analyses ICT developments over

“ Outlook

the past five years. Out of 167 countries indexed for ICT Development Index, Nepal stood at the 136th position with an overall score (IDI 2015 value) of 2.59 on a scale of 10. In 2010, Nepal stood at the 140th position. On the ‘IDI Use subindex’ ranking, Nepal is on the 132nd position with a score of mere 1.14.65 In the regional ranking, Nepal stood on the 26th position.

With the deal almost likely to be sealed, the arrival of Axiata, the leading and largest telecommunication company in the Asian continent, in Nepal could be huge. It certainly would be interesting to see prospects of the services this company would bring into the mix of Nepal’s telecom sector. Perhaps given the company’s network base in South Asia, the interconnectivity within this region could be expected to broaden. The deal is expected to complete by mid-2016; however, the Inland Revenue Division is still looking into the deal unable to figure out if charges apply on capital gains tax on the share transaction. If future transactions at such levels is to be encouraged; which would mean providing an investor friendly environment; the government should be wary that the deals do not get stalled on authorization procedures in the government agencies.

If such is the case, it would undoubtedly prove to be a disincentive for investors.

Docking Nepal’s Economic Analysis

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Figure 12: ITU’s ICT development index for Nepal 0

0.2

0.4

0.6

0.8

1

Fixed Telephone Subscriptions Mobile Celluar Subscriptions

Access

International Internet bandwidth per internet user Households with computer Households with internet Internet users

Use

Fixed BroadBand Subscriptions Active mobile-broadband subscriptions Secondary enrolment (in education)

Skill

Tertiary enrolment (in education) Adult literacy 2010

2015 Source: International Telecommunication Union (ITU)

REAL ESTATE Speculation of people that the price of real estate will never go down and it is the safest sector to invest in is the key driver for increasing real estate prices. With accelerating growth of remittances and lack of alternative investment opportunities, huge sums have gone into land and housing business fueling the price rise.

Easy home loan schemes: Banks and

financial institutions (BFIs) are offering easy home loan schemes with very low interest rates to attract customers in order to manage excess liquidity. NIC Asia is offering home loan at 6.49% interest rate, NMB bank at 6.66 % with maximum repayment tenure of 25 years and Machhapuchchhre Bank at 7.5 %. They also have started offering schemes for construction,

reconstruction, restructuring, and land and house purchase. Regular income group are also eligible to apply for loans with the credit amounts— ranging from NPR 500,000 (USD 4,628) to NPR 10 million (USD 92,567)— being specified by the BFIs as per property valuation and maximum loan tenure. Interest rates are based on floating market and subject to change, but bankers assume that the rate will not vary this fiscal year. Both equity as well as EMI based loans is available with less than 1% administration charge and the loan process will be finalized within five working days after providing all the relevant documents.66 Work procedure for land acquisition:

The Government of Nepal has drafted a work procedure, which aims to accelerate the process of acquiring private property. It has also cut-short

many cumbersome processes of land acquisition to facilitate relocation and rehabilitation of people who suffered from the massive earthquake.

The provisions included in the work procedure will only apply to land acquisition process related to post-earthquake reconstruction works. It has also attempted to simplify the procedure of disbursing compensation to owners whose land is being acquired. The draft has been sent to the National Reconstruction Authority (NRA) for consultation and will be sent to the cabinet for its approval. Once the draft is approved, it will provide NRA the authority to make the final decision regarding land acquisition and enable them to hold direct negotiations with the land owner to fix the compensation amount.67

“ Outlook

Nepal’s realty sector has shown a gradual improvement. Speculative pricing by some of the real estate players and banks is mainly to blame for the realty slump. Speculation on real estate forced the Nepal Rastra Bank to restrict lending to the sector to prevent a complete financial breakdown.

However over the years since the cap on real estate lending, the sector has bounced backed. The improvement has not improved as speculated by many.

However it can be said that the country’s real estate sector has seen its worst.

In recent months, banks have started issuing new home and land loans at lower interest rates are a good sign.

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Amendments to construction bylaws:

The Government of Nepal has ratified the ‘Fundamental Construction Bylaws on Settlement Development, Urban Planning and Building Construction 2015’. The standards set by the Ministry of Urban Development has made it mandatory to maintain setback of one-and-half meter for houses not taller than three storeys from the border of the land plot. While public buildings up-to 17-metre high are required to leave a minimum setback of three meters, non-public buildings have to allocate for a two-meter setback.

The minimum setback for even taller buildings is five meters. Furthermore, residential buildings are restricted from cover more than 70% of land for plots up-to 250 square meters and for larger plots, the ceiling is fixed at 60%.68 Microfinance Loan increased by NRB: Nepal Rastra Bank (NRB) has

issued a circular that has amended the ‘Refinance Procedure to Earthquake Affected Households to Rebuild Homes’ and has increased the amount of subsidized loans that a ‘D’ class financial institution can provide to the survivors of the earthquake to rebuild their homes. It also permits the survivors to make borrowings without collateral and these microfinance institutions will extend collateral-free credit on group guarantee basis. NRB has also permitted ‘A’, ‘B’ and ‘C’ class BFIs to refinance loans for the reconstruction of homes destroyed by the quakes.

However, neither will the BFIs be allowed to approach the survivors requesting them to take a loan, nor will

26

they be allowed to deny them a loan.

The earthquake survivors can borrow up-to NPR 2.5 million (USD 23,142) in the Kathmandu Valley and NPR 1.5 million (USD 13,885) in other quakehit districts from different BFIs at subsidized interest rate of 2%.69

EDUCATION The current academic session has been mired in a number of challenges. The damage caused by the earthquakes in terms of the loss of physical educational infrastructure is immense and if the reconstruction does not pick up pace, this is likely to have a much deeper and longer term adverse effect on the future of millions of children. Subsequently, for months together, the education sector was impacted by agitations in the Terai-Madhes region and the resultant crippling shortage of fuel. The impact was especially pronounced in the central and eastern Terai districts where political unrest affected operation of classes, and in urban centers where a large number of schools pick up and drop students in buses.

NPR 1 trillion SSDP set to replace SSRP: The School Sector Reform

Program (SSRP) expired in December 2015. With the departure from the ambitious SSRP, the Ministry of Education has come up with another plan called the School Sector Development Program (SSDP); to guarantee quality education for all by 2016-2022. This plan aims to reform school education as per the new constitution. The plan which

Docking Nepal’s Economic Analysis

is currently being discussed at the Education Ministry plans on making basic education, from grade one to eight, free and compulsory with an investment disbursement of NPR 1 trillion (USD 9.2 billion) over the next seven years. According to officials, since the government cannot arrange the required funds with its own resources, it is will be seeking for donors’ support.70 Amendment to the Education Act:

The Government tabled a new Eighth Amendment Bill on Education Act1972, which has clauses such as free basic education from grade 1-8, along with mandatory registration of new private schools as cooperatives and formation of the National Examination Board.71 Proponents of the bill maintain that the new law will end multiple problems within the education system such as the recurrent issue of temporary teachers. The proposed amendment has drawn flak from the private educators who allege that the provisions of the bill are against their interests and have demanded clarity on the role of private sector in education sector following the amendment and the way in which the amendments will be implemented.72 Unused teachers and grants to be kept in a pool: The higher secondary

schools had been provided teachers and grants under the Community Higher Secondary School Level Teachers Management Directive-2015. As some of the schools failed to use the grants and teachers due to lack of students, Department of Education (DoE) has directed all district education offices to

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collect the spare higher secondary-level teachers and unused grants in a pool.

Deputy Director of Community School Management Section at DoE maintained that as the schools were in a dilemma over what to do with such teachers and unspent grants, it directed the district education office to collect them in a pool.73 The teachers and grants collected in the pool will later be distributed to other higher secondary schools on the basis of number of students.

results of Grade XI annual examinations held in June-July 2015 in January 2016.

A total of 49.20% of total 243,731 regular students who had taken the tests passed the examinations. In the exempted category, 34.65% of the total 126,930 candidates passed the tests.75 The results are similar to that in the previous year when under the regular category just around 47.26% of students had passed, and around 33.15% had passed under the exempted category.76

Schools with foreign curricula start registration process: Government

215 temporary schools constructed in 17 districts: Two hundred and

record shows that 14 schools—13 affiliated with the CBSE and Lincoln School accredited by the New England Association of Schools and Colleges— have been operating without getting registered in Nepal. In January 2016, Ministry of Education (MoE) instructed all schools with foreign affiliation to finish their registration process within a month. MoE warned the schools of closure if they failed to oblige with the instruction. Depending upon the number of grades in the schools, they are required to deposit between NPR 500,000 (USD 4628) to NPR 1.5 million (USD 13,885). As per the Education Act, every school should have permission from the concerned district education office, should be registered at the Company Registrar’s Office or Guthi for operation, and pay taxes in accordance to the rules and regulations.74

HSEB publishes Grade XI result after six months: The Higher Secondary

Education Board (HSEB) published

fifteen temporary schools have been constructed in 17 districts over seven months since the earthquake of April 2015; in a campaign initiated by Nepali Congress leader Gagan Thapa.

The campaign which started in May has been successful in constructing 21 pre-fabricated buildings; while the rest were Temporary Learning Centers.

Gagan Thapa claimed that over 3,000 volunteers from over 30 organizations lent their support for the cause.77 Plus-two level to adopt the letter grading system from new session:

Letter grading system will be introduced in examinations of Grade XI and XII from the new academic session in accordance to the Higher Secondary Education Board (HSEB)’s decision. Letter grading system was earlier introduced in School Leaving Certificate examinations by the Office of the Controller of Examinations, while the Council for Technical Education and Vocational Training (CTEVT) also decided to implement the letter grading system at various levels. Vice chairperson of HSEB mentioned that the decision was taken on a policylevel but the number of grades would be finalized at a later stage.78 Further, a technical team has been formed with a

“ Outlook

With the political protest programs and the blockade now over, educational institutes are bracing for a fresh start in the upcoming academic session. However, both; the natural and political calamity that struck the country this year reaffirm the fact that the education sector lacks the necessary preparation and resilience to face natural disasters, and is vulnerable to being held hostage by political instability. Education programs and policies dealing with educational infrastructures should therefore, accord due importance to quality and not just quantity.

On the policy front, with the proposed amendment to the Education Act aimed at aligning the country’s education sector in accordance to the new constitution drawing strong criticisms from the private sector, doubts about its implementation in case it is endorsed by the House have already surfaced. Given that private educational institutions are key stakeholders in the education sector of the country, it is difficult to project how important legislations such as this proposed can be implemented without its cooperation.

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month-long tenure to conduct a study on letter grading system at the plus-two level.

Nepal’s education sector receives NPR 480 million from European Union: The European Union (EU)

of two-thirds of the parents while fixing the fees and, also to provide salary and facilities to teachers on par the government schools.80

HEALTH

provided NPR 485 million (USD 4.5 million) to the Government of Nepal to support the country’s education sector which has been severely hamstrung by the earthquake and political turbulence in 2015. The support is to be mobilized under the School Sector Reform Program (SSRP).79 Of its current budget support, this payment by the EU is the third fixed tranche to the Nepali education sector totaling NPR 3.7 billion (USD 34.2 million) for the SSRP.

The economic blockade has had a major impact on the stock of raw materials, medicines, equipment and various other goods. One of the heavily hit sectors is the health institutions. The medicines have been out of stock for many months now and the raw materials required for building the health posts and health clinics, especially in rural areas, after the earthquake has been halted or prolonged. However, even with these hurdles, rebuilding has been going on in the country.

School fee fixation criteria rejected

by PABSON: In order to fix the school

Rebuilding the health facilities: A total

fees in a scientific way, the Department of Education (DoE) has formed a technical committee under the coordination of its director. Claiming that many changes were made to the final draft of work procedure prepared by the technical committee, Private and Boarding School’s Organization (PABSON) warned that they would not follow the work procedure and criteria set by the government. President of PABSON maintained that if the work procedure is implemented forcibly, the government would have to nationalize all the private schools in the country and provide them with adequate compensation. The work procedure that the government has come up with requires all the schools to take consent

28

of 699 health institutes, which were damaged in last year’s earthquake, has been rebuilt and repaired.81 All of the facilities have been established using prefabs and local materials. The most focused structures while rebuilding have been health posts and primary health care centers as these ground-level facilities directly cater to the health needs of the public.82

The ministry has sought NPR 6 billion (USD 55.5 million) for the reconstruction of the destroyed health facilities. It has signed memoranda of understanding with 45 donors and NGOs who have agreed to build 348 health facilities in the 14-worst affected districts. UNICEF alone has signed a Memorandum of Understanding with

Docking Nepal’s Economic Analysis

the Ministry of Health and Population to build 74 disaster-resilient prefabricated health facilities with birthing units to support re-establishment of essential health services in nine earthquakeaffected districts which is worth NPR 235 million (USD 2.17 million).83 Tuberculosis, now a looming crisis:

The World Health Organization (WHO) reported that the ‘ancient’ lung disease tuberculosis (TB) now ranks alongside HIV as a leading cause of death worldwide. Although Nepal is not listed as one of the most TB at-risk countries, the devastating earthquakes that hit in April and May 2015 left many individuals displaced and have caused significant problems in getting vital medication to those in need.

The highest rates of infection have been found in the most densely populated areas. This implies that those displaced individuals who are currently living in the temporary settlement camps are prone to TB simply because they are forced to live in less-than-optimal conditions, often with poor ventilation, overcrowded, stressful conditions, and inadequate nutrition. These challenges are real, but the biggest problem currently being faced is reaching to those who live in remote temporary settlement camps located in the high altitudes where road access is poor. We are yet to see what the effects of these disastrous disruptions will be if left untouched.84 Child malnutrition increased: The

number of children suffering from Malnutrition in Nepal has increased

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drastically after the April Earthquake.

Around 5% of the children in Banke under the age of five are severely malnourished. 85 While earthquake may have increased the instances of malnourishment, experts have said that the food insecurity in Banke has also increased due to soil erosion of fertile land and destruction of crops by their own habitants and wild animals.86

this inattention to the stigmatization of mental health problems, which is especially pronounced in Nepali communities --where more often than not traditional negative connotations are attached to mental illnesses. The impact of the earthquake on mental and emotional health of the people in Nepal can lead to invisible and incurable disasters.

April 11th and 12th, 2016 with the theme of Health and Population Research for Achieving Sustainable Development Goals (SDGs) in Nepal.

Health and Population Scientists as a group has contributed immensely to promote evidence informed decision making process and it has been instrumental in achieving many of the goals of MDGs.

A study held by the Equitable Development Hurdles Program in Parsa found out that children from socially and economically backward communities have been suffering from malnutrition.

The program was initiated in order to study the fundamental needs like education, health, safe drinking water, cleanliness along with developments in child and women sector.87

The World Health Organization (WHO) noted that there is only one government-run psychiatric hospital in Nepal. Less than 3% of Nepal’s national budget is allocated to health, and only 1% from this goes to mental health.

Since the earthquakes, mobile mental health clinics have been increasingly utilized in order to reach out to the affected persons, especially those in remote areas. Although mobile clinics are a good initiative, the mental health consequences of earthquakes continue to be overlooked in the country.88

One of the objectives of the Summit is to bring health and population scientists together to promote evidence informed decision-making process for optimal health and wellbeing of Nepalis. Adding to this is to encourage health and population scientists and practitioners for responsible conduct of research on health and development and mostly, to discourse and find out the way forward on emerging health and population issues for strengthening national health system of Nepal for achieving SDGs.89

Summit for the future MDGs to be held in April: The Second National

TOURISM

Proper mental health care and awareness required in Nepal: Post-

earthquake, most of the media focused on death tolls or physical injuries. Mental health problems, such as post-traumatic stress disorder (PTSD) and depression, resulting from the losses received limited attention. Scholars attribute

“ Outlook

Summit of the Health and Population Scientists in Nepal is being held on

With the earthquake and then the economic blockade, health sector in Nepal will face a major setback to the achievements the country saw in recent years. While the earthquake damaged countless health facilities, preventing people from accessing even the basic health care services for months, the shortage of essential medicines due to the border blockade has made its impact across the country. The raw materials for the construction work of most health facilities were halted due to the blockade and this delay in the construction work will force an extension of not only the health facilities provisions but also the quality of life by months.

The tourism industry has been one of the hard hit industries initially due to the April Earthquake and subsequently the Madhes blockade and the resultant fuel crisis. Despite the re-opening of durbar squares, the number of tourists visiting the country is yet to witness an encouraging growth.90 Besides the decline in tourist arrival, the fuel crisis forced tourismbased entrepreneurs to close shops; further worsening the situation of the crisis hit industry. Nepal Tourism Board, which is responsible for development and marketing of Nepal as a tourist

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destination, has finally taken shape. This has brought hope for improvements in the industry scenario amidst all crises.

fell by 30%, the trekking segment witnessed a marginal drop of 6%.93

Tourist arrival falls to a 6 year low, number of trekkers also decline: The

in tourist arrival has also resulted in the fall of tourism revenue. In the first four month of the current FY 2015/16, tourism revenue fell by 18.1% at NPR 12.89 billion (USD 119 million). Earlier, the average hotel occupancy stood at 9095% which declined sharply to 20% on average in the current fiscal year. While few managed to operate fairly, the trade embargo and fuel shortage resulted in closing down of hotels and restaurants, with around 110 hotels and restaurants in Thamel alone reportedly shut down.

Furthermore, the employment in hotels and restaurants also fell by 50%. The crisis faced by the tourism industry will have an adverse impact on the economy as Tourism is seen as one of the pillar of Nepal’s economy.94

April 2015 earthquake and the political turmoil have impacted the number of tourists visiting the country. In 2015, tourist arrivals fell to a six year low of 538,970; this is a 31% decline from 2014 figures. This however is an overestimation of the number of tourists as this figure also includes rescue personnel and volunteers who came in to help the earthquake victims.

India, China, Sri Lanka, USA and Thailand are the top five source market of Nepal’s tourism. Incoming tourists from India and China witnessed a sharp decline of 45% and 46% respectively;91 despite, for the latter, Nepal has implemented free on-arrival tourist visa policy for the citizens of its northern neighbour China. Further, promotional campaigns are crucial to ensure that a positive image of Nepal is established in this aftermath of the April Earthquake.

Without a proactive combined effort from tourism stakeholders, it will be difficult to tackle the current crisis situation of the tourism industry.92 In terms of trekking tourists, although the number of free individual tourists trekking went up by 1.87% (15,140) in 2015, the Trekkers Information Management System (TIMS) card issued by TAAN fell by 7.61% (71,300) in 2015. In total the number of trekkers fell from 92,301 in 2014 to 86,710 in 2015. Although the total tourist arrivals

30

Fall in tourism revenue: The decline

NTB’s CEO and board members appointed: A Chief Executive Officer

has finally been appointed at Nepal Tourism Board (NTB) after a four year hiatus.95 Furthermore, the two vacant board member’s position at NTB has been filled after Tourism Minister appointed two members from the private sector. The two members have been appointed for a three year term.

With this appointment NTB now has a full board of 11-member96 which includes five board of directors from the private sector and equal number of appointees from the government, while NTB CEO is the 11th member. Given the current crisis situation being faced by the tourism industry, that too in the

Docking Nepal’s Economic Analysis

aftermath of April 2015 earthquake, this move restores some confidence among the stakeholders.

Nepal – Bhutan agreement on tourism:

A six-point agenda has been signed between Nepal and Bhutan with the motive of increasing air connectivity and tourism between the two countries. A memorandum of understanding (MoU) has been signed to give permanent status to the Air Service Agreement.

Furthermore, Nepal has agreed Bhutan’s proposal to grant two more traffic frequency on Paro-Kathmandu-Delhi and Delhi-Kathmandu-Paro from the existing four per week. Agreement has also been reached to sign a separate MoU to simplify immigration procedures.

Besides these, agreement has also been reached on the Nepal government proposed “beyond rights” facilities which will enable Nepali carriers, or other “stopover” carriers where passengers can embark or disembark at intermediate stops of connecting flights.97 Nepal listed as must visit destination in 2016: Nepal listed sixth on National

Geographic Traveller Magazine’s must-see destinations of 2016.98 Similarly, Nepal has also made into National Geographic Traveller Magazine’s Cool List for 201699 along with Rough Guides’, a London based travel guide, recommending Nepal as one of the top must-visit countries in 2016. These internationally recognized rankings can be leveraged to promote and re-establish Nepal as a safe tourist destination in the international areas.

Furthermore, post-earthquake there is an immense opportunity for volunteerism

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tourism to be combined with an adventure holiday. Tourism stakeholders needs to put in collaborative efforts to pull out the tourism industry from the crisis situation.

Responsible and sustainable elephant tourism: Tiger Tops, a tourism based

enterprise, has initiated Tiger Tops Elephant Camp with the help of experts from Elephant Aid International. Under this, the traditional elephant safaris are being replaced with an elephant experience where the guests will be surrounded by chain-free elephants living in spacious, naturalistic corrals.

This is a step towards adoption of the practice of responsible and sustainable elephant tourism in Nepal.100

Parbat to become a commercial p a rag l i d i n g d e s t i n a t i o n : Plans

are underway to start commercial paragliding in Parbat by mid-April. Two test flights were completed in Kusma, the district headquarters. The location at Parbat provides the view of Kali Gandaki Gorge, Modi River and the country’s highest suspension bridge. Parbat Paragliding Management Committee in collaboration with Pokhara’s Frontline Paragliding Company will be conducting the commercial operations.101

Nepali hotels make it to Trip Advisor’s Traveller’s Choice 2016: Trip Advisor

comes up with a list of best hotels around the world on the basis of their hospitality and service to customer.

Ten hotels of Nepal have made it to the distinguished Traveller’s Choice 2016. This includes two hotels from

Pokhara and Chitwan each and six hotels from Kathmandu. The hotels included in the list are Shaligram Hotel (Patan), Dwarika’s Hotel (Kathmandu), Landmark Forest Park (Chitwan), Shambaling Boutique Hotel (Kathmandu), Hotel Tibet International (Kathmandu), Gokarna Forest Resort (Kathmandu), Hotel Shambala (Kathmandu), Temple Tree Resort and Spa (Pokhara), Hotel Seven Star (Chitwan) and Waterfront Resort Hotel (Pokhara). This global rating has provided recognition to the services being offered in the country.102 Plan to open Thamel’s night life put on hold: The lack of essential infrastructure,

like street lamps and security measures such as surveillance cameras, for supporting 24 hour opening of Thamel has put the plan on hold. Kathmandu District Administration has asked for additional time to inspect the physical

underpinning of Thamel. It is estimated that 80% of foreign tourist visiting Kathmandu have Thamel as a part of their itinerary. Currently Thamel has 4,000 traders running 18 different types of businesses providing employment to around 300,000 people.103 Temporary visa fee waiver sought:

Federation of Nepalese Chambers of Commerce and Industry (FNCCI) has requested the government to temporarily waive visa fees for at least six months. FNCCI has also recommended the government to introduce incentive packages for tourism entrepreneurs and schemes for domestic and foreign investments. Given that operating costs of hotels and restaurants have increased by around 40% amid the fuel crisis, FNCCI has suggested the creation of a relief fund and loan provision at subsidized interest rate for a year so that tourism entrepreneurs are able to revive the industry and bring it out of the current slump.104

“ Outlook

In order to take Nepal’s tourism industry in the path of sustainable recovery, there is a need for a strategic planning with collaborative effort from all stakeholders. NTB under its new CEO has devised four strategies – 2016 a year of survival, 2017 a year of revival, 2018 a year of reinvigoration and 2018 as a year of building back better.106 As 2016 is seen as the year of survival, Nepal needs to leverage on its current rankings provided by a globally circulated National Geographic Traveller Magazine and Online travel forum Trip Advisor. This is especially crucial at a time when the country is reeling under the pressure of falling tourist numbers and resultant fall in revenue. Efforts are being made to add four more planes to the national flag carrier’s fleet. This increased fleet and addition of route needs to be packaged with promotional travel itinerary to entice visitors to travel to Nepal. The top two source market – India and China should be the target of aggressive promotional campaign. The revival of Nepal’s tourism is only possible with proactive and collaborative efforts from the public, private and government stakeholders.

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Two new trekking routes identified in the Annapurna region: Under the

initiative of Trekking Association of Nepal Western Regional Association Pokhara, two new routes has been explored in Kaski, Parbat and Myagdi districts in the Annapurna region. The week long trail begins from Kaski’s Ghandruk –Thadapani – Dobato to Myagdi’s Bayali and then to Kaski’s Pone, Hidden Lake, Gurung Hill and Chhomrong. Some areas along the route do not have accommodation facility so the trekkers will have to use tents. Another five day trail starts from Parbat’s Kushma, Banau, Salija, Phalamendanda and then to Myagdi’s Nagi and Moharedanda.105

so as to be in a better position to tackle any future crisis situation.

Table 1 highlights the foreign trade situation of Nepal in the first six months of the current FY 2015-16. The first six Foreign

trade

scenario:

months data reflects the bouncing back of the economy post- earthquake and then the sharp slump resultant of the economic blockade. The first six months witnessed slumps in trade with total exports falling by 27.19% amounting to NPR 31.59 billion

Table 1: Foreign Trade Statistics for the first six months of FY 2015-16 (in millions) NPR in millions

2013-14

2014-15R

2015-16P

Percent Change 2014-15

2015-16

TOTAL EXPORTS

45,142.9

43,391.03

31,592.16

-3.88

-27.19

To India

29,566.07

27,163.94

17,409.19

-8.12

-35.91

To China

1,341.27

1,567.71

598.16

16.88

-61.84

TRADE AND DEBT

To Other Countries

14,235.55

14,659.38

13,584.81

2.98

-7.33

Although the border blockade has ended and goods have started flowing through all border points, it can be anticipated that the clearing of goods and cargo awaiting clearance on the Indian side of the border and in Kolkata port during the blockade with take some time. While the country’s import and export has shrunk greatly, the political turmoil has also greatly impacted industries most of which either remained closed or operated below capacity owing to inadequate fuel and raw materials supply. Despite the ease at the border points, the impact of the blockade which had started reflecting immediately in terms of increased price of commodities has yet to come down. This situation has prompted the country to revisit its trade policies and organizational efficiencies

TOTAL IMPORTS

333,907.40

374,002.06

277,792.24

12.01

-25.72

From India

220,516.90

236,984.24

156,792.43

7.47

-33.84

From China

36,168.40

53,956.51

46,196.81

49.18

-14.38

From Other Countries

77,222.10

83,061.31

74,803.31

7.56

9.94

TOTAL TRADE BALANCE

-288,764.48

-330,611.04

-246,199.88

14.49

-25.53

With India

-190,950.84

-209,820.31

-139,383.24

9.88

-33.57

With China

-34,827.18

-52,388.80

-45,598.65

50.43

-12.96

With Other Countries

-62,986.60

-68,401.93

-61,218.20

8.60

-10.50

TOTAL FOREIGN TRADE

379,050.32

417,393.09

309,384.21

10.12

-25.88

With India

250,082.98

264,148.18

174,201.63

5.62

-34.05

With China

37,509.71

55,524.22

46,794.98

48.03

-15.72

With Other Countries

91,457.62

97,720.69

88,387.80

6.85

-9.55

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Based on customs data R=Revised / P=Provisional

Source: NRB Report –Current Macroeconomic Situation, Based on six months data of 2015/16

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(USD 290 million), during the same review period in 2014-15 total exports amounted to NPR 43.39 billion (USD 398 million). Exports to India and China faced sharp slumps of 35.91% and 61.84% respectively while that to third countries fell by 7.33%. In terms of monetary value, yarns, textiles and Iron & Steel products witnessed the highest decline, i.e. 29%, 46% and 58% respectively. However, the export of Cardamom increased by 61.2% with the country exporting cardamom worth NPR 2.38 billion (USD 21.8 million) in the same period.

Imports also fell by 25.72% amounting to NPR 277.79 billion (USD 2.5 billion), whereas it had recorded a growth of 12% during the same review period in the last fiscal year. While imports from India and China fell by 33.84% and 14.38% respectively, imports from other countries increased by 9.94%. The import of petroleum products—one of the top imported item—fell by 64% amounting to NPR 21 billion (USD 193 million) while the country had imported petroleum worth NPR 58 billion (USD 533 million) during the same review period last fiscal.

Top exports, imports: The blockade has

shuffled the mixture of top exports and imports of the country. Woolen carpet and readymade garment now tops the list of export item in terms of value with the country exporting woolen carpets worth NPR 3.96 billion (USD 36.6 million) and readymade garments worth NPR 2.89 billion (USD 26.55

million). Even though iron and steel products witnessed a decline of 58%, in terms of value, it still comes third with iron and steel products worth NPR 2.5 billion (USD 22.97 million) exported during the review period. Export to China witnessed the sharpest decline of 63% while export to India declined by 36%. However, export to UK witnessed an increment of 27% while export to the Netherlands increased by 21.4%.

Iron and Steel products was the top most imported product amounting to NPR 25.85 billion (USD 237.5 million) despite a decline of 36.3% compared to the same period last fiscal.

The import of petroleum products witnessed a sharp decline of 64% amounting to NPR 21 billion (USD 193 million). The blockade, which restricted trade between Nepal and India, has resulted in the change in Nepal’s trade direction in favor of third countries. Imports from third countries Turkey, Switzerland and Canada increased by 450%, 414% and 133% respectively while imports from China fell by 16% and that from India fell by 36%.

Trade deficit: The total trade deficit

amounted to NPR 246.20 billion (USD 2.26 billion) compared to the previous fiscal’s deficit of NPR 330.61 billion (USD 3.03 billion) in the first six months of the fiscal year. This is an improvement of 25% compared to last fiscal expansion of trade deficit by 14.5%. The blockade of border points and the resultant fall in importexport activity has contributed in the

improvement of trade deficit scenario.

BOP surplus: The country recorded

a significant rise in BOP surplus from the surplus of NPR 34.26 billion (USD 314.8 million) last fiscal to the surplus of NPR 139.75 billion (USD 1.29 billion) in the first six months of the fiscal year. The current account also registered a surplus of NPR 157.52 billion (USD 1.45 billion) as compared to the surplus of NPR 13.82 billion (USD 1.28 billion) during the same review period last fiscal.

Activities increase at Sirsiya Dry Port:

Resultant of the blockade of Birgunj customs point, trade activity increased at the alternate Sirsiya Dry Port. The Birgunj Customs Point had remained closed from September 22, 2015 to February 16, 2016. The government’s revenue collection from this dry port has reached NPR 92.38 billion (USD 848.84 million) far exceeding its target of NPR 1.43 billion (USD 13.14 million) for the period between midJanuary and mid-February. Although this port came into operation 12 years ago, the railway route was not being utilized at its full capacity. However, the issue of delays and overcrowding at Kolkata port is still an issue for the increase uptake of Sirsiya Dry Port.107 Clinkers and coal impor ted via Kakarbhitta: The clearing of obstructions

at border points was followed by a sharp rise in the imports of coal and clinkers through the Mechi Customs Office. 157,172 tonnes of coal worth NPR 2.53 billion (USD 23.25 million)

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was imported in the first six and a half months of FY 2015-16. Following the closure of Birgunj Customs Point, the imports were re-routed to Kakarbhitta point. Resultant of this, Mechi Customs Office witnessed trade worth NPR 3.43 billion (USD 31.52 million) in the first six months of the current fiscal exceeding its target of NPR 704 million (USD 6.5 million) and resulting in revenue collection of NPR 795 million (USD 7.35 million), also exceeding the target of NPR 454 million (USD 4.17 million).108 Non-tariff barriers to be identified:

Ministry of Commerce is preparing to conduct a survey to identify nontariff barriers affecting the export of coffee, handicraft, pashmina and woolen products, large cardamom, honey, ginger and tea in the first phase.

The 100-day action plan will identify issues hindering exports of the above mentioned products to Japan, Europe and the US. Furthermore, trade barriers for exporting large cardamom to India and the United Arab Emirates, and Nepali honey to China and Taiwan will also be examined. In addition to this, issues for exporting ginger to China and India, and tea to Australia and Russia will be studied. The Ministry will also be preparing action plan to implement Commerce Policy 2015 which will focus on diversifying trade, promoting exports and tackling trade barriers.109 Nepal National Single Window plan underway: The Department of

Customs (DoC) is planning to launch Nepal National Single Window

34

which will help entrepreneurs’ to reduce time and cost. A single digital window system will enable traders to submit their documents to a single platform electronically and this will be made available to other concerned authorities. The project has identified 62 government agencies and private sector bodies that will be connected to the single window. The department has prepared a bid document to develop the system and has forwarded the same to the World Bank, who is helping the development of the new system. The department plans to launch the system from 2018. In this relation, a centralized system has already been established at the DoC with a back-up system inside Singha Durbar.110 Alternatives to minimize losses faced

by Nepali traders being explored:

Nepali traders have to shell out additional costs in trade due to high demurrage and detention charges levied by shipping liners. This was clearly visible during the border blockade when trade between Nepal and India was severely disrupted. The umbrella organization of freight forwarding companies of Nepal – Nepal Freight Forwarders’ Association (NEFFA), has approached International Tr a d e C e n t re , Un i t e d Na t i o n s Economic and Social Commission for Asia and the Pacific and International Maritime Organization for exemption of demurrage and detention charges levied by shipping liners during the prolonged border blockade. NEFFA and Federation of Nepalese Chambers of Commerce and Industry (FNCCCI) has formed a joint delegation and is holding meetings with diplomatic missions of the respective country of origin to exempt the charges.111

“ Outlook

The disruption of trade due to the border blockade and the resultant impact on the economy has exposed the vulnerability of Nepal’s economy especially in terms of its over-reliance on trade with India. The apathy of the government to ease supply, divert trade traffic to alternate ports, and to clear the goods stuck at the border during the blockade has shown the need to strengthen the government’s technical capacity to address and manage crisis situations. This has also presented with it a number of opportunities. Custom points that were previously under-utilized proved to be of great value exceeding their revenue collection targets by large margins.

The need to diversify the reliance on a single port cannot be emphasized enough in the current scenario when alternate ports have shown their potential. As international trade is dependent on economic diplomacy and trade negotiation capacity of the country, which is facilitated by a strong well-functioning Ministry of Commerce with skilled and experience human resources with in-depth understanding and knowledge of trade, Nepal needs to invest resources in making sure such conditions are met.116

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Garment Export Processing Zone in the offing: In order to revive the

readymade garment industry of Nepal, the Department of Commerce and Supply Management has supported the call for establishment of a Garment Export Processing Zone (GEPZ).

The establishment of GEPZ is expected to resurrect the readymade garment industry and also address the requirement of labor flexibility as these zones are guided by their own laws and can circumvent certain Acts and regulations. This will also enable the industry to take advantage of the Trade Facilitation and Trade Enforcement Bill recently endorsed by the US senate allowing duty-free entry to 66 Nepali goods including garments. This bill will make Nepali garments 17% cheaper for buyers in the US.112

Seven trade agreements signed between Nepal and India: During

Prime Minister KP Oli’s visit to India, the two neighbors signed seven agreements to strengthen the bilateral relationship.

These include simplification of transit between Nepal and Bangladesh through Kakarbhitta-Banglabandh corridor, operationalization of Vishakhapatnam Port, amendment on Treaty of Transit and Rail transit to and from Vishakhapatnam; amendment in Rail Service Agreement and Rail transit facility through Singhabad for Nepal’s trade with and through Bangladesh.

These agreements are expected to improve Nepal’s trade with third country and also increase the utilization of the dry port at Birgunj. Earlier Nepal’s foreign trade was dependent on

the Haldia port, with the opening of Vishakhapatnam port trade with third countries is expected to east out and to be less costly for Nepal.113

interest payment. External debt accounts to 18% while internal debt accounts 8% of GDP114 as on 14 January 2016.115

Figure 13: Debt Position of Government of Nepal Figure 13: Debt Position

External Debt Situation: As per the

Government of Nepal

of

Quarterly Debt Position of Government 33% of Nepal issued by Financial Comptroller 35% General Office (FCGO), external debt in the first quarter of FY 2015-16 fiscal year increased by NPR 30.84 billion (USD 0.29 billion) i.e. by 9%. External Figure 13: Debt Position of Government of Nepal October 2015 External debt as on 17 October 2015 was NPR 360.13 billion (USD 3.29 billion) which Internal increased to NPR 374.10 billion (USD 33% 3.46 billion) as on 14 January 2016 65% 35% which form 65% and 67% of total loans 67% at corresponding periods respectively as January 2016 shown in Figure 13. Such increase has October 2015 been reported due to the depreciation External Debt of the Nepali rupee vis-à-vis the US Internal Debt dollar and Special Drawing Rights Source: Financial Comptroller G (SDR). SDR is a supplementary foreign Source: Financial Comptroller General Office 65% reserve asset created by the International Note: Total Loan as onNote: October 17, Loan 2015 isas NPR billion 5.34 Total on556.32 October 17,(USD 2015 is billion) NPR and loan a (USD 5.19 billion)billion (USD 5.34 billion) and loan as on 556.32 Monetary Fund (IMF). 560.16 billion 67% January 14, 2016 is NPR 560.16 billion (USD 5.19

January 2016 billion)

In the first half of this fiscal year, government received its borrowing all FOREIGN AID from external debt amounting to NPR Financial General Office 22.66 billion (USD 0.21 billion), of Source: Foreign aidComptroller pledges have fallen by which 97% i.e.

NPR 21.89 billion 55.9% from bilateral and multilateral Note: Total Loan as on October 17, 2015 is NPR 556.32 billion (USD 5.34 billion) and loan as on January 14, 2016 is NPR 560.16 billion 5.19 billion) (USD 0.20(USD billion) was received from agencies in the first five months of multilateral sources and rest i.e. NPR FY 2015-16 of Nepal, due to donors 0.77 billion (USD 7.12 million) focusing on other international was received from bilateral sources. problems like refugee crisis in Europe Regarding the payment of the external and enhancing underdeveloped regions debt, NPR 10.24 billion (USD 94.79 in Africa. Nepal had received pledges million) has been paid to the external worth NPR 93.37 billion (USD 864.29 creditors of which NPR 8.65 billion million), from development partners (USD 80.07 million) was principal between mid-July to mid-December repayment and balance NPR 1.59 against NPR 211.72 billion (USD 1.95 billion (USD 14.71 million) was the billion), that was received in the same

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Cash Grants and Loans (in billions)

Figure 14: Comparison of Foreign Cash Grants and Loans in the first seven months over the past five years 24.27

23.39

22.52

20.26

15.31 11.71

2.79 2011/12

11.31 6.15

2.29 2012/ 13

2013/14

2014/15

2015/16

Fiscal Year Grants

Loans

Source: Current macroeconomic situation based on first seven months of FY 2015-16, NRB

period previous year. The reason that may have discouraged donors includes poor utilization of capital budget and delays in project implementation.

In addition to this, Nepal has made impressive progress in the social sector, especially in education and health sector over the years, which possibly may have brought down the foreign aid commitments.

particularly stark distinction can be made with regards to the current FY 2015/16 compared to previous years, where grants and loans amount to be almost similar with loans growing more than 3 times the previous FY. This spike in loans can most likely be attributed to the earthquake reconstruction efforts; which although is yet to gain momentum.

Foreign grants and loans exhibit wavering patterns: As can be seen

Canada’s initiative to rebuild Nepal: Canada’s International Development Research Centre will be investing NPR 129.6 million (USD 1.2 million) to help Nepali communities affected by the earthquake to restore houses, public buildings and other infrastructures, as well as promote better mitigation and management for future natural disasters.

The International Centre for Integrated Mountain Development (ICIMOD) will

in Figure 4, the amount of grant and loans received during the first seven months for the last five years do not show any particular trend. While grants received have consistently been greater to loans taken, trends for both headings mark an inconsistent pattern; although loans show a higher incidence of deviation. However, a

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Docking Nepal’s Economic Analysis

be working on the project as local partner and this project will support rehabilitation and reconstruction activities in Dhungetar.

The initiative will help build eco-friendly, climate and earthquake resilient homes as well as strengthen livelihoods and community resilience. This further will provide supervision on better disaster risk management and preparation for climatic and non-climatic hazards. The Government of Canada has provided NPR 2.92 billion (USD 27 million) as assistance funding post-earthquake which has been directed to UN humanitarian agencies, Canadian NGOs and the International Federation of Red Cross and Red Crescent Societies (IFRC).117 JICA offers grant assistance: Japan International Cooperation Agency (JICA) signed a grant agreement with the government of Nepal to provide loan up-to NPR 23.8 billion (USD 220 million) for post-earthquake reconstruction of Nepal and separate grant aid up-to NPR 3.6 billion (USD 33.3 million) as support for the Program for Rehabilitation and Recovery from Nepal Earthquake. Both the agreements have conditions with of 40 years repayment and 10 years grace period with 0.01 % interest annually. The loan will be used for emergency schools reconstruction project and housing reconstruction project in 14 districts that were severely affected by the earthquake.

The aid will be utilized to reconstruct Bir Hospital and Paropakar Maternity and Women’s Hospital in Kathmandu Valley, replace water transmission pipelines in Sindhupalchowk District and construct bridges in Gorkha District that was

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Sectoral Sectoral Review Review

severely struck by the earthquake. The aid is also aimed at strengthening public services in mountain region to prepare against future disasters under the Build Back Better (BBB) concept, which was adopted at the Third UN World Conference on Disaster Risk Reduction in Sendai, Japan, in March 2015.118 Nepal’s community forestry excluded from donor’s fund: Nepal’s community

forest has been removed from the international donor’s fund despite the forestry’s active contribution during the crucial times of unfortunate events over the past three decades. There are 25,000 community forestry user groups (CFUGs) managing 30% of forests in Nepal and is one of the most resilient social institution, providing relief in many rural areas after the earthquake and supplying timber and firewood to Kathmandu during the blockade. Although it is unclear why donors are pulling out of Nepal’s community forest, there have been instances where the failures in projects such as Multi Stakeholder Forest Programme (MSFP) led to withdrawal by donors.119 World Bank provides NPR 2.4 billion loan assistance: A total of NPR 2.4

billion (USD 22.5 million) will be given to the Government of Nepal as loan assistance for the Power Sector Reform and Sustainable Hydropower Development Project, jointly by World Bank and South Asia Initiative Multi donor trust fund. Of the total amount, the former will provide NPR 2.2 billion (USD 20 million) while the rest would be covered by the latter. The project will be managed by Ministry of Energy, Water

and Energy Commission Secretariat as well as Nepal Electricity Authority. It will consists of three parts -- preparation of hydropower and transmission line investment projects, studies and preparations for policy recommendation and lastly sector reform and capacity building for safeguard management and hydropower development.120 ADB disappointed with the performances of energy sector projects:

With barely 7% spent of the pledged

NPR 47.9 billion (USD 444.2 million) equivalent to 26% of the total funding in the energy sector in 2015, Asian Development Bank (ADB) expressed dissatisfaction with the progress, or lack thereof, of the projects. On the whole, ADB currently has invested approximately NPR 183.6 billion (USD 1.7 billion) spread across 33 investment projects. ADB currently supports five energy projects of which 140MW Tanahu Hydropower Project and Electricity Transmission Expansion and Supply

Rebuilding homes 23% of the fund pledges has been secured by the government that was received during the International Conference on Nepal’s Reconstruction (ICNR) by development partners. The conference was held on 25 June, 2015 to provide information to donor agencies about the damages caused by the earthquake. The development partners committed to extend NPR 444 billion (USD 4.11 billion), of which 48% will be provided as grant and 52% as soft loan. Of the pledged amount NPR 103.3 billion (USD 956.07 million) has been signed between the GoN and development partners.

Maximum funds have been allocated for the reconstruction of housing sector, around NPR 54.9 billion (USD 508.83 million), which is 52% of the amount, has been set aside to rebuild houses destroyed by the earthquakes. Following are the bilateral and multilateral agencies that have made contributions for the development of housing sector.

• World Bank (WB) and International Development Association (IDA) have together pledged NPR 21.6 billion (USD 200 million) as loan • Government of Japan have committed NPR 10.7 billion (USD 98.83 million) as loan • Government of China NPR 1.1 billion (USD 10 million) as grant • Government of India NPR 10.8 billion (USD 100 million) as assistance Although Nepal has received large amount of aids for restructuring, National Reconstruction Authority (NRA) has not been able to utilize the funds effectively nor make a detailed evaluation of the private houses destroyed by quakes. However, NRA will initially begin the construction process of model residential houses in five districts and has already approved designs of 17 quake-resistant residential houses.127

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Improvement Project are the major ones; with combined amount of NPR 22.04 billion (USD 204 million). Of the total projects, these two were found to be off track – with implementation difficulties primarily ensuing from delays in land acquisition, right of way and forest clearance, limited manpower in power implementation agency, and insufficient project management capacity. ADB has suggested the government to restructure Nepal Electricity Authority financial plan, rationalize electricity tariff and make an effective plan for better output.121 Nonetheless, despite the dissatisfaction, ADB is further increasing annual lending by 60% starting 2017 acknowledging that the earthquake and blockade considerably hampered project execution in 2015. However, with more than 70% of ADB’s portfolio yet to be disbursed, ADB expects the government to be able

“ Outlook

Despite of receiving huge amount of foreign aid from bilateral and multilateral agencies, Nepal has not been able to utilize the funds effectively; the earthquake and blockade further impeded the already weak fund utilization capacity of the government.

However, with the blockade opening up, the funds which previously lay idle would most certainly begin to get disbursed. With the reconstruction efforts having stalled for nearly six months, one could expect the pace at which the rebuilding to occur drastically, especially in housing sector with monsoon fast approaching.

38

to utilize the funds more effectively in 2016 given the crisis have passed.122 Poor foreign aid execution: Only

4% of foreign aid has been utilized in the first half of the current fiscal year; NPR 8.85 billion (USD 81.9 million) foreign aid including grant and loan has been spent in the current fiscal year against the total allocation of out of NPR 205.88 billion (USD 1.9 billion). Contrary to the expected rise in economic activities following the earthquake, the planned projects and aspirations soon hit a snag as the blockade set in along with the National Reconstruction Authority lingering in limbo. Although shortages in fuel and other commodity due to the blockade has been often cited for the poor fund utilization, one of the major reasons for the projects stalling has to do with the delays in government agencies in giving the green light; almost NPR 108.03 billion (USD 1 billion) aid disbursed by ADB remains unused due to the indecision of Nepal Electricity Authority (NEA).123 Nepal to approach Asian Infrastructure Investment Bank for aid: The

Government of Nepal will soon be approaching the Asian Infrastructure Investment Bank (AIIB) as the Government of China announced to contribute additional NPR 5.4 billion (USD 50 million) in the bank to support least developed countries (LDCs) in project selection and preparation. Nepal is one of the founding members of AIIB and holds 0.0809% share in the bank, hence can enjoy the facility to pay for its shares

Docking Nepal’s Economic Analysis

in AIIB in installments. Nepal will provide list of mega projects primarily in hydropower generation, installation of transmission lines and some strategic road networks, which AIIB can fund to bridge the infrastructure gap.124 US funds NPR 129.6 million to construct Regional Crisis Management Centre (RCMC): The United States (US) gov-

ernment has funded NPR 129.6 million (USD 1.2 million) for building Regional Crisis Management Centre (RCMC).

The center is located at the Nepal Army Chhauni Barracks in Kathmandu and is under construction process, which is scheduled to be completed by March 2017. RCMC will comprise of civilian and military personnel and will primarily be involved in organizing search and rescue, disaster relief and post-disaster activities (such as debris removal). Along with RCMC, a warehouse will also be built which will also store emergency supplies and equipment. The RCMC and warehouse will provide assistance and materials during a disaster to those affected, as well as facilitate effective communication and coordination response between civil-military partners.125 Germany commits NPR 3.5 billion to Nepal: The Government of Germany has

committed NPR 3.5 billion (USD 32.4 million) for earthquake rehabilitation and recovery of Nepal. The German aid will be allocated to two major projects; where 83% will be invested in Financial Cooperation Recovery Program and the rest in Reconstruction Program.

The former program will operate under German Development Bank-

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Sectoral Sectoral Review Review

REMITTANCE

Figure 15: Growth in remittances along with six-monthly data on remittances received for the past six years 350

100 90

300

80

250

70

200

60

150

40

50 30

100

20

50

10 0

0 mid-Jan 11

mid-Jan 12

mid-Jan 13

mid-Jan 14

Remittance received (In billions)

mid-Jan 15

mid-Jan 16

Growth rate (In %) Source: Nepal Rastra Bank

Remittances largely aided in making ends meet during the blockade. However, concerns regarding sustainability of remittance driven economy are bound to surface given the instability in the international job market for migrants, namely the gulf countries and Malaysia, consequently leading to declines in number of workers going abroad. On top of this, the remittance inflow for the first six months has been low compared to the average rate of inflow during the same time-frame for the last six years.

good year in terms of remittances. In the current year, though the remittance growth appears to be of a considerable amount, in actuality it is not the case.

The average growth in remittance for the first six month in the last six years stands at approximately 21%, whereas the current rate of growth is 17.3%.

Therefore, the current pace at which remittance collection is moving is lower compared to the average, and is marked by a gap of nearly 4% or NPR 10.15 billion (USD 93.9 million).

Pseudo-growth in remittances: In

Decrease in number of workers going abroad: In the current fiscal year

the first six months of the fiscal year 2015/16, the worker’s remittance figured at NPR 323.69 billion (USD 2.99 billion) which was an increase of 17.3% compared to the same period of the previous year.128 It should be noted that in the previous year the remittance collected in the same period grew by just 3.9%, which suggests that fiscal year 2014/15 was not particularly a

In %

In billions

KfW on behalf of the Government of Germany, focusing on reconstruction of district hospitals severely damaged by the earthquake and rural energy distributions networks, while also providing support for rehabilitation of cultural heritage sites, schools and roads in Bhaktapur. The latter 17% will be used to provide healthcare services, housing facilities and other urgent needs in Dhading, Nuwakot, Rasuwa and Bhaktapur districts, managed by the German Agency for International Cooperation – GIZ.126

2015/16 up until mid-January 2016, an estimated 210,315 people have gone abroad based on the final approval by the department of foreign employment. This figure is 22.5% lower compared to last year for the same time period.129 In fact, the current fiscal year marked a decline in foreign employment throughout all the months till mid-January 2016 compared

to the previous year (refer Figure 16). This decline has primarily been attributed to the slide in demand for workers in the gulf countries as a consequence of sharp falls in the international crude oil prices and the recent decision by the Malaysian government to halt work permits for the foreign workers; Malaysia alone accounted for almost 40% of the foreign workers in fiscal year 2014/15, while the gulf countries combined accounted for nearly 56%. Given that remittance income to GDP is nearly 30%, the decline in workers going abroad has significant impact on the economy. For instance, a single worker on average sent NPR 1.2 million (USD 11,108) in 2014/15; therefore, for every fall in the number of workers, Nepal would on average lose that much money or more.

Manpower agencies go on a protest:

Manpower agencies, have shut down their businesses as a form of protest. The agencies undertook to protests against

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Figure 16: Comparative pattern on number of workers going abroad in the first six months of fiscal year 2014/15 and 2015/16 No. of workers going abroad (In thousands)

271

226

129 94

210 175

173 137

114

78

42 38

mid-Aug

mid-Sept

mid-Oct 2014/15

mid-Nov

mid-Dec

mid-Jan

2015/16 Source: Nepal Rastra Bank

the decision of the police authorities to raid 17 manpower agencies following complaints of financially cheating and overcharging clients as well as other irresponsible acts such as sending the clients to a different destination than promised; the agencies also protested against Malaysia halting foreign employment.130 Up-to 754 manpower agencies ceased their operations which reportedly have reduced Nepali foreign job seekers going abroad by more than 50%. Prior to this conflict with the authorities, the manpower agencies also had voiced their discontent with the government’s scheme of providing free tickets and free visas for the Nepali migrant workers going to the gulf countries and Malaysia. However, there have been allegations against the agencies of being involved in unlawful conduct, receiving commission from international companies for supplying workers illegally and evading tax.131 Foreign workers keen on acquiring vocational skills: More number of

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workers planning on going abroad has begun enrolling themselves at vocational and technical institutes in hopes of acquiring specialized skills. On average, a skilled worker is expected to earn at least 40% more than an unskilled worker.132 However, though the number of skilled workers is increasing, the increase has occurred at a slow pace. For instance, in 2014, the Council for Technical Education and Vocational Training (CTEVT) reported 52% of the workers going abroad were unskilled, and 32% were semi-skilled; while, only 16% were skilled. Yet these figures are slightly encouraging compared to a decade ago in 2004 where only 4% of the workers were skilled while nearly 70% were unskilled and the rest semi-skilled.

With regards to the slow growth, there have been allegations that Nepal has been unable to tap into the full potential of migration economy due to poor governance; on one instance

Docking Nepal’s Economic Analysis

the Labor Minister nearly scrapped a Swiss-supported vocational training project claiming Nepali youths should be discouraged working abroad, when the current unemployment rate for youths (15-29) stands at 19.2%133 i.e.

1.41 million or more than 1.5 times greater than the population of Lalitpur and Bhaktapur combined.

“ Outlook

With falls in the number of workers going abroad, the subsequent earnings from remittances is expected to decrease in the coming years. The absolute amounts perhaps may not reflect the full extent of the decrease but if one were to take into account the remittance that otherwise would have been coming in, the impact is likely to be substantial. This further would lead to decrease in aggregate demand, as much of the remittance money goes into consumption. If the trend continues, labor shortage especially in agriculture would be curbed but the costs of the lost job opportunities would likely far outweigh the benefits of additional labor; given earnings from remittances are a lot higher than agriculture.

Similarly, as major international job markets are heavily reeling under their own problems along with the uncertainty of job sustainability for migrant workers, the conditions signals for the need to swiftly accommodate the impending unemployment and underemployment cr isis. One of the avenues that potentially could lessen a portion of the unemployment could be the earthquake reconstruction works; which unfortunately has gotten entangled in the usual political squabbles.

DOCKING NEPAL’S ECONOMIC ANALYSIS Docking Nepal’s Economic Analysis

Macroeconomic Overview

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NEFPORT ISSUE 23 – JANUARY 2016

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Review

Financial Markets The private sector credit recorded a growth of 13.5% against the target of 20% owing to supply disruptions and adverse economic conditions; consequently the target for the year has been revised downward to 17.5%.

The first six months’ macroeconomic and financial situation report of FY 2015-16 published by the Nepal Rastra Bank (NRB) depicts that the deposit collection of Banks and Financial Institutions (BFIs) increased by 5.7% i.e. NPR 100.41 billion (USD 0.93 billion). The growth in the corresponding review period in the previous year was also same i.e. 5.7% amounting to NPR 85 billion (USD 0.86 billion). The deposit mobilization of commercial banks increased by 6.1%, whereas development banks and finance companies showed an increment of 2.5% and 4.7% respectively. In the corresponding period of the previous year, there was an increment of deposits by 7.2% and 2.3% of commercial banks and finance companies; however, such deposits of development banks had decreased by 1.1%. On year-overyear basis, deposits of BFIs expanded by 20.1% in mid-January 2016.

Loans and advances of BFIs increased by 4.3%—i.e. NPR 65.90 billion (USD 0.61 billion)—compared to a growth of

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The weighted average 91-day treasury bill rate has increased to 0.68% from 0.16% a year ago. Similarly, weighted average interbank transaction rate of commercial banks has increased to 0.26% from 0.15% a year ago. While this growth is not very significant, the upward pressure on the rate could

9.5%—i.e. NPR 125.39 billion (USD 1.27 billion)—in the same period the previous year. Credit disbursement in major areas such as industrial production, wholesale and retail trade, construction and agriculture remained lower than that in the previous year as shown in Figure 7.

Figure 17: Sector-wise credit distribution of BFIs 16.19%

7.87%

8.15%

7.60%

4.62%

15.66%

7.46%

4.53% 11.79%

11.87%

October 2015 21.90% 21.56%

20.30% 10.75% 18.70%

11.05%

January 2016 Agriculture Construction

Docking Nepal’s Economic Analysis

Others Wholesaler & Retailers

Productions Finance, Insurance, & Fixed Assets

Source: Current Macroeconomic and Financial Situation of Nepal (Based on Six Months’ Data of 2015-16), NRB

Docking Nepal’s Economic Analysis

Review

possibly be related to the higher than usual collection of liquidity in the system due to IPO and FPO subscriptions.

To control excess liquidity in the banking system, the NRB mopped up liquidity of NPR 304.85 billion (USD 2.82 billion) on turnover basis through deposit collection auctions, NPR 198.40 billion (USD 1.83 billion) through reverse repo auction, NPR 97.35 billion (USD 0.90 million) through outright sale auction, and NPR 9.10 billion (USD 84.23 million) on cumulative basis. Similarly, in the corresponding period of the previous year, NPR 260.50 billion (USD 2.64 billion) was mopped up through reverse repo auction and NPR 75 billion (USD 0.76 billion) through deposit collection auctions.

NRB further injected net liquidity of NPR 234.13 billion (USD 2.16 billion) though the net purchase of USD 2.23 billion from foreign exchange market (commercial banks), while net liquidity of NPR 157.20 billion (USD 1.60 billion) was injected through the net purchase of USD 1.66 billion (NPR 179 billion) in the corresponding period of the previous year. The NRB purchased Indian currency amounting to INR 90.8 billion (USD 1.34 billion) through the sale of USD 1.38 billion (NPR 149 billion) in the review period while it had purchased INR 106.94 billion (USD 1.73 billion) during the corresponding period of the previous year.

Mergers of BFIs Following NRB’s decision to raise the minimum paid-up capital of Bank and Financial Institution (BFIs) by four folds in just two years’ time, BFIs published their capital plan on their respective websites as directed by NRB. Accordingly, the BFIs are coming up with merger announcements day by day. As per the NRB’s Current Macroeconomic Situation report based on first-six months’ data, in the last four years 83 BFIs have merged with each other to form 31 BFIs. Nepal Credit and Commerce Bank (NCC) and Kumari Bank have signed a Memorandum of Understanding (MoU) for merger. NCC Bank has already signed similar merger deals with four other development banks i.e. Infrastructure Development Bank, International Development Bank, Apex Development Bank and Supreme Development Bank.

After the merger process, the paid-up capital of the merged entity will reach NPR 8.21 billion (USD 76 million).

Currently, NCC bank is under the supervision of NRB due to dispute between the promoters.134 Similarly, Bank of Kathmandu (BoK) and Lumbini Bank signed a MoU for merger agreeing to name the merged entity as Bank of Kathmandu Lumbini.

Accordingly, the swap ratio has been agreed at 1:0.8281. The paid up capital as per second quarter report of 2015-16 of BoK is NPR 2.67 billion (USD 24.71 million) and that of Lumbini Bank is 2 billion (USD 18.51 million).135

Other BFIs to have signed a MoU for merger are Civil Bank and International Leasing and Finance Company (ILFC).

Civil bank is an ‘A’ class financial institution, having paid-up capital of NPR 2.89 billion (USD 26.75 million) and ILFC is a ‘B’ class financial institution having a good capital base of NPR 2.01 billion (USD 18.60 million).

After merger the merged entity will have a paid-up capital of NPR 5.09 billion (USD 47.11 million).136 Following the suit, Siddhartha Bank Ltd. (SBL) and Business Universal Development Bank Ltd. (BUDBL) signed a MoU agreeing for a merger.

The merger process is expected to complete by mid-May 2016 and shall operate under the name of Siddhartha Bank Ltd. The consolidated capital of the merged entity shall reach NPR 3.49 billion (USD 32.30 million).137

Basel III implementation postponed NRB has announced the implementation of Basel III--a global regulatory framework for more resilient banks and banking systems— for commercial banks of the country from mid-July, 2016. Earlier NRB had decided to introduce Basel III at commercial banks from the beginning of 2015. Currently, commercial banks in Nepal follow Basel II and NRB has planned to introduce phase-wise transition to Basel III by mid-July 2019. As per such arrangement, Capital Adequacy Ratio will be brought down gradually to 8.5% by mid-July 2019 from current 10% while the buffer

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Review

capital will be increased from the current 1% to 2.5% by the same time.

With a view of adopting the international best practices, NRB has already issued the Basel III implementation action plan and expressed its intention to adopt the Basel III framework, in a simplified form. The Basel III capital regulations continue to be based on three-mutually reinforcing Pillars, viz. minimum capital requirements, supervisory review of capital adequacy, and market discipline of the Basel II capital adequacy framework.

Government launches Economic Revival Fund (ERF) of NPR 100 billion The government has launched the Economic Revival Fund (ERF) of NPR 100 billion (USD 925.6 million) through which interest subsidy and refinancing facility will be extended to borrowers of the productive sector.

The Fund has been created through contributions made by the government, banks and financial institutions (BFIs), and development partners. The objective of the fund is to aid various sectors of the economy hit by the earthquakes and supply disruptions along the India - Nepal border points.

NRB has issued Economic Revival Fund Guideline – 2072 regarding the establishment and management of the fund. As per the guideline, NRB will provide credit line to each BFI at 1.5% interest. BFIs will then extend refinancing facility at an interest rate of not more than 5%. Borrowers can

44

apply for 100% refinancing facility on credit of up-to NPR 50 million (USD 0.46 million) for a period of two years. If the loan amount exceeds this level, 20% of the credit amount in excess of NPR 50 million will be extended as refinancing facility. The refinancing facility will be provided strictly to the productive sector that can generate jobs and contribute towards capital formation. The productive sectors enterprises that qualify for such loans include Small and Medium Enterprises (SMEs) and other industries engaged other than in alcohol and tobacco business, agricultural farms, tourism sector (e.g. trekking, mountaineering, rafting, camping, homestay, resort, hotel & restaurant), real estate companies, hydroelectric plants that are under construction, hydro projects whose commercial production has remained suspended due to quakes and other problems, and any project related to production, transmission and distribution of hydroelectricity can benefit from this facility.

As per the guideline, good borrowers are entitled to interest subsidy of 4% up-to NPR 100 million (USD 0.93 million) and 2% points on credit amount exceeding NPR 100 million.

The entity will qualify for subsidy if production or transaction volume of the concerned business has fallen by over 50% in the first six months of the current fiscal year as compared to the corresponding period of the previous fiscal year. If this condition is met, borrowers will be entitled to subsidy on

Docking Nepal’s Economic Analysis

interest charges of first six months of the current fiscal year. This facility will be provided to the agricultural sector, SMEs, Tourism sector and industries other than those engaged in tobacco and alcohol business.

Insurance Board prepares Insurance companies for capital hike The Insurance Board (IB) issued a circular in January 2016 stipulating all insurance companies not to distribute cash dividend for FY 2014-15 so as to comply with the proposed increment of the paid-up capital. Insurance companies also complied with the directive of the Board and did not announce the distribution of cash dividend to their shareholders.

The Insurance Board has drafted a new Insurance bill which proposes a hike in the minimum paid-up capital of life insurance companies by 10 times to NPR 5 billion (USD 46.28 million) and non-life insurance companies by 16 times to NPR 4 billion (USD 37.03 million). The current minimum paid-up capital requirement of life and non-life insurance companies is NPR 500 million (USD 4.63 million) and NPR 250 million (USD 2.31 million) respectively. Similarly, Insurance Board has also proposed to increase paid-up capital of re-insurance companies to NPR 10 billion (USD 92.57 million) from current requirement of NPR 5 billion (USD 46.28 million). According to the draft bill, insurance companies will

Docking Nepal’s Economic Analysis

Review

Mid-term monetary policy review The Governor of NRB, on February 28, 2016 unveiled the mid-term review of its monetary policy for fiscal year 2015-16 presenting a downward revision of the country’s projected Gross Domestic Product (GDP) growth rate from the earlier target of 6% to 2% mainly on account of supply disruptions and unrest in the Terai-Madhes region. The challenges that emerged in the first six-months of the fiscal year resulted in lower than targeted growth in industrial production, government expenditures, and credit growth in the private sector. The 6% GDP growth target was mainly backed by the anticipation of post-earthquake reconstruction work and accelerated government capital expenditures. Similarly, the inflation forecast has been revised upwards by 1% to 9.5% keeping in view the supply disruptions and prolonged unrest at the southern border. The average Consumer Price Index (CPI) in the first six months of the current fiscal year stood at around 9.4% compared to the annual average inflation target of 8.5% set by the monetary policy.

The private sector credit recorded a growth of 13.5% against the target of 20%. Consequently, the target for the year has been revised downward to 17.5%. Similarly, the money supply recorded a growth of 23.5% and the revised projection for the year is 21.5% from initial target of 18%. No new measures were launched to manage the liquidity at optimum level and the central bank plans to continue addressing the current liquidity surplus by deploying the existing monetary instruments like reverse repo and deposit auction, and has hinted that it may issue NRB bonds, if required. No changes have been made on cash reserve ratio (CRR), statutory liquidity ratio (SLR) and refinancing rates.

Major highlights of the Mid-term monetary policy review are as follows: i. Proposed amendments of Nepal Rastra Bank Act, 2058 and Banking Offence and Punishment Act, 2064 and the Banking and Financial Institutions Act, 2063 is being discussed in the parliament ii. Formation of working committee to prepare policy and framework for establishing national level infrastructure bank which shall be undertaken after the proposed BAFIA passed from the parliament iii. Capital Adequacy Framework 2015 as per Basel III accord to be fully implemented from the beginning of next fiscal year.

Currently, it is being run in parallel for six months till the end of current fiscal year iv. Discussion is underway to invoke Prompt Corrective Action (PCA) for liquidity shortfall of BFIs v. Strengthening of current liquidity monitoring and forecasting framework by analyzing the liquidity trend, seasonality, and optimum liquidity requirement in the banking system vi. Interest subsidy and refinancing facility extended as per Economic Revival Fund Guideline 2072 to aid various sectors of the economy hit by the earthquakes and supply disruptions along the India-Nepal border points. vii. Procedure to be initiated for the establishment of Real Time Gross Settlement (RTGS) system and discussions are currently ongoing regarding technical support for the same viii. Draft of Payment and Settlement policy on the process of discussion and Payment and Settlement act draft in the process of preparation ix. Establishment of “Client Protection Fund” by D class Micro finance Institutes (MFIs) setting aside 1% of their net profit to the fund and MFIs announcing a dividend above 20% required to allocate 25% of the dividend to the fund for the welfare of its borrowers. x. Loan up-to NPR 3 Lakh per customer from MFIs in addition to loans at 2% interest rate to rebuild homes for earthquake victims xi. Preparation of framework for identification of the banks which are vital for the sustainability of the economy as Systematically Important Banks (SIB)

Nefport Issue 24 – April 2016

45

Review Review

have to meet such requirement within two years after the law comes into effect.

This hike in the capital requirement is expected to stimulate mergers in the insurance industry. Currently, there are nine life insurance and 17 non-life insurance companies in the country.138

NRB to float bonds worth NPR 67.50 billion Nepal Rastra Bank (NRB) will float bonds worth NPR 67.50 billion (USD 0.62 million) between mid-March and mid-May, as part of the government’s plan to raise funds worth NPR 88 billion (USD 0.81 billion) from the domestic market to support deficit financing. This year, NRB, which issues bonds on behalf of the government, intends to float Development Bonds, with maturity period of eight, 11, 12, 13 and 15 years, worth NPR 62 billion (USD 0.57 billion), shows the domestic debt issuance calendar of the central bank. Last year, yields on bonds, with maturity period of 15 years, had fallen as low as 2.65% due to presence of excess liquidity in the banking sector.

This year too as banks are facing the problem of excess liquidity, it is likely that the rates will be similar.

would fetch 8% p.a. return as interest.

These bonds can be bought from most of the BFIs in the form of promissory notes or stocks. Bonds bought in the form of promissory notes can be traded by owners anytime based on mutual understanding. The NRB also issues another type of bonds for general citizens, whose sales are restricted to overseas migrant workers, non-resident Nepalese or those who have returned

“ Outlook

In the second quarter unaudited results of the commercial banks, loans and advances recorded an average growth of 14.33%. This can be sum up as a fairly satisfactory performance despite of supply disruptions and the slowdown of economic activities.

Similarly, the net profit of the banks rose marginally to NPR 14.83 billion (USD 137.27 million) from NPR 14.59 billion (USD 135.05 million), an increase of around 2.06%.

The policy taken by central bank regarding increase in paid-up capital by encouraging mergers and acquisitions of BFIs is being effectively implemented and the number of BFIs reported as of mid-January 2016, are 30 commercial banks, 73 development banks, 47 finance companies, and 40 micro-finance companies.

Due to the supply disruptions and political instability faced by the country, NRB on mid-term review of the monetary policy 2015-16 presented a downward revision of the country’s projected GDP growth from earlier target of 6% to 2%. In order to achieve the much needed impetus across all the quarters of the economy, the government has to expedite the reconstruction activities and capital expenditures as planned without any further delay.

Also, NRB is mulling over floating NPR 5 billion (USD 46.28 million) worth of Citizens Saving Bonds, with maturity period of 5 years. These bonds are targeted at general public and

46

home from foreign employment destinations less than 4 months ago.

This year, the central bank is planning to float NPR 500 million (USD 4.62 million) worth of Foreign Employment Savings Bond, with maturity period of 5 years with a coupon rate of 9%.

Among others, the NRB is also issuing 91-day, 182-day and 364-day Treasury Bills worth NPR 20.5 billion (USD 189.76 million).139

Docking Nepal’s Economic Analysis

107.11

55.66

45.42

77.84

320.89

206.00

287.06

288.78

212.00

306.03

Prabhu Bank

Janata Bank Nepal

Mega Bank

Civil Bank

Century Commercial Bank

Sanima Bank

Nefport Issue 24 – April 2016

986.08

Agriculture Dev. Bank

11172.83

858.90

Rastriya Banijya Bank*

47

Total

646.50

Nepal Bank

Public Sector Banks

-

42.78

415.46

NMB Bank*

79.49

5261.34

536.17

(84.20)

(154.36)

-

43.56

90.91

203.70

(134.77)

322.07

200.00

109.67

Sunrise Bank

370.53

Prime Commercial Bank

109.31

192.19

179.61

163.42

113.99

144.13

Grand Bank

616.43

306.52

Global IME Bank

243.74

Siddhartha Bank

Citizens Bank International

243.17

303.92

Kumari Bank

Laxmi Bank

200.08

117.93

230.58

202.86

369.50

NCC Bank

NIC Asia Bank

330.38

490.15

151.54

274.26

267.15

Everest Bank

Bank of Kathmandu

Lumbini Bank

325.52

222.15

305.81

303.92

Nepal SBI Bank

Nepal Bangladesh Bank

Machhapuchchhre Bank

326.20

449.91

Himalayan Bank

453.94

413.49

634.57

224.82

608.19

Nepal Investment Bank

475.50

Nabil Bank

Reserve & Surplus

Standard Chartered Bank

Paid-up Capital

Bank 1 QTR

9,808.13

155006.65

8,254.10

12,842.36

8,022.08

-

3,909.63

2,407.71

2,693.17

2,352.72

2,313.78

4,798.19

5,248.83

643.80

3,722.46

4,230.62

4,003.47

6,382.53

4,863.82

4,110.75

3,453.12

4,454.28

2,084.92

5,831.83

2,663.56

4,181.10

7,604.58

3,550.10

5,835.98

8,113.77

5,788.01

129158.50

6,907.57

10,254.21

6,927.13

-

3,014.74

2,338.36

2,354.60

1,985.47

2,073.58

3,316.03

2,906.49

1,274.50

2,921.09

3,692.90

3,091.81

5,520.26

3,893.85

3,433.24

2,988.48

3,961.19

1,753.49

4,809.22

2,238.23

3,415.51

7,001.98

2,720.00

5,725.83

6,702.55

5,066.37

7,992.60

8,877.22

1 QTR

10,837.25

FY 14/15

FY 15/16

Deposit

19.58

19.50

25.24

15.80

29.68

2.97

14.38

18.50

11.58

44.70

80.59

-49.49

27.43

14.56

29.49

15.62

24.91

19.73

15.55

12.45

18.90

21.26

19.00

22.42

8.61

30.52

1.90

21.00

14.00

22.00

22.00

% Change

116272.03

6,757.90

7,719.44

5,513.19

-

3,329.07

2,084.40

2,304.95

2,046.31

1,850.21

3,179.57

4,276.46

834.11

3,010.56

3,411.86

3,355.65

5,498.50

4,030.06

3,341.35

2,750.60

3,738.94

1,848.64

4,627.16

2,172.65

3,228.65

5,504.02

2,917.10

4,181.82

5,899.71

2,610.24

7,748.27

6,500.65

1 QTR

FY 15/16

2,335.30

101837.05

6,176.26

6,589.75

4,500.15

-

2,589.35

1,977.55

2,110.67

1,754.86

1,841.21

2,720.27

2,331.26

1,185.67

14.33

9.42

17.14

22.51

28.57

5.40

9.20

16.61

0.49

16.88

83.44

(29.65)

28.92

12.97

26.36

3,020.22

15.60

2,655.61

25.94

15.28

8.77

11.11

18.07

17.42

13.37

5.49

0.62

23.18

7.39

11.43

(11.39)

21.55

0.48

% Change

4,756.39

3,199.97

2,898.43

2,528.92

3,364.94

1,565.67

3,940.54

1,916.39

3,060.75

5,470.18

2,368.10

3,894.20

5,294.46

2,945.74

6,374.47

6,469.78

1 QTR

FY 14/15

Loans and Advances

1789.29

26.53

88.81

64.37

-

62.71

23.42

9.95

25.29

18.41

31.98

46.80

(12.84)

40.51

58.59

37.05

104.54

59.43

40.44

29.53

60.32

21.17

61.60

23.44

50.01

117.40

58.85

92.71

126.18

87.87

143.94

190.28

1 QTR

FY 15/16

1404.97

50.98

61.36

13.98

-

43.24

12.88

27.81

24.84

11.51

(15.27)

39.35

(33.40)

26.45

50.67

34.51

66.18

46.28

24.62

22.77

39.58

21.22

47.84

24.53

51.36

118.23

45.20

82.05

91.70

88.02

115.23

171.26

1 QTR

FY 14/15

30.65

(47.96)

44.74

360.55

45.02

81.84

(64.22)

1.81

59.92

(309.46)

18.94

(61.57)

53.14

15.63

7.34

57.97

28.43

64.26

29.72

52.41

(0.25)

28.77

(4.44)

(2.64)

(0.70)

30.20

13.00

37.60

(0.17)

24.91

11.10

% Change

Operating Profit

1483.65

38.75

107.20

104.82

40.80

16.08

15.63

22.35

13.80

40.56

42.12

14.91

36.40

46.92

41.85

76.27

48.74

30.33

21.02

40.14

18.14

50.21

24.69

32.92

75.38

36.86

62.39

80.22

61.20

107.82

135.13

1 QTR

FY 15/16

1453.65

53.45

360.08

38.75

27.82

9.98

17.70

15.83

10.92

54.02

27.06

(13.87)

26.05

36.21

27.99

54.05

32.61

17.72

18.17

34.41

17.00

36.06

23.92

33.08

77.12

33.10

53.28

58.95

64.47

96.61

111.13

1 QTR

FY 14/15

Net Profit

2.83

5.36

3.40

3.85

0.05

0.66

2.14

1.11

1.38

5.53

0.40

34.53

2.30

1.46

2.43

1.64

1.41

1.14

2.55

0.43

0.91

1.40

1.30

1.20

0.67

1.08

0.17

3.16

0.41

1.10

1.70

1 QTR

FY 15/16

3.12

5.36

3.40

3.85

0.04

0.34

1.93

1.78

0.86

10.86

3.38

26.61

3.97

2.46

2.01

2.57

2.47

1.18

3.84

1.73

0.77

2.41

2.21

1.73

0.65

1.26

0.22

2.12

0.44

1.13

2.10

1 QTR

FY 14/15

3.91

5.15

1.93

2.16

-

4.18

4.48

5.66

3.93

4.92

3.66

4.31

6.11

4.92

4.52

4.45

3.06

4.10

4.01

4.69

4.16

4.76

4.85

4.54

7.53

2.37

4.46

2.70

2.45

1.46

3.16

2.43

1 QTR

FY 15/16

4.31

5.36

3.40

3.85

-

4.93

5.10

5.85

4.13

5.16

3.98

2.19

6.92

4.70

4.68

4.55

4.20

4.71

4.71

4.92

4.59

4.93

5.06

4.90

8.04

3.15

4.49

3.23

3.42

1.92

3.60

3.02

1 QTR

FY 14/15

(0.41)

(0.21)

(1.47)

(1.69)

-

(0.75)

(0.62)

(0.19)

(0.20)

(0.24)

(0.32)

2.12

(0.81)

0.22

(0.16)

(0.10)

(1.14)

(0.61)

(0.70)

(0.23)

(0.43)

(0.17)

(0.21)

(0.36)

(0.51)

(0.78)

(0.03)

(0.53)

(0.97)

(0.46)

(0.44)

-0.59

Change

Cost of Fund (LCY)

6.56

9.13

6.71

6.35

-

6.19

7.57

8.34

7.36

7.95

6.60

7.64

9.16

7.45

7.20

7.27

6.29

7.06

6.99

7.09

6.59

7.63

6.69

7.81

3.61

5.59

7.41

5.97

5.20

4.61

5.45

4.54

1 QTR

FY 15/16

Base Rate (%)

Published Second Quarter Financial Report (2015-16) of respective banks

2.06

(27.50)

(70.23)

170.53

46.68

61.06

(11.67)

41.16

26.40

(24.91)

55.67

(207.54)

39.74

29.58

49.53

41.12

49.47

71.15

15.70

16.65

6.70

39.22

3.20

(0.47)

(2.26)

11.35

17.11

36.08

(5.07)

11.60

21.60

% Change

NPL (%)

Table 2: 2nd QUARTER RESULTS OF COMMERCIAL BANKS-UNAUDITED FY 2015-16 (FIGURES IN NPR IN TEN MILLION) Docking Nepal’s Economic Analysis

Review

Review

Capital Markets

Secondary Market Performance The sole secondary market, Nepal Stock Exchange (NEPSE) index (+23.11%) went up by a whopping 246.5points during the review period (December 1, 2015 - March 15, 2016) to settle at a new high of 1312.9 points. During the review period, NEPSE index surpassed the previous historical high of 1,175.38 points set on August 31, 2008.

As shown in Table above, during the review period, all the sub-indices except for the Hotels sub-index (-6.45%) ended in the green zone.

The Development banking sub-index (+49.89%) was the highest gainer largely due to sharp increment in share prices of Microfinance Development banks, followed by the Insurance sub-

Table 3: Sector-wise performance of the sub-indices Indicators

1-Dec-15

15-Mar-16

% change

1,066.4

1,312.9

23.11%

Commercial Bank Index

982.8

1,183.9

20.46%

Development Bank Index

907.9

1,360.8

49.89%

Finance Index

544.1

667.5

22.68%

Insurance Index

4,680.8

5,935.7

26.81%

Hydropower Index

1,908.8

2,316.4

21.36%

Manufacturing & Processing Index

1,862.4

1,998.8

7.32%

Hotel Index

1,860.2

1,740.3

-6.45%

Other Index

763.6

822.4

7.69%

Nepse Index

Source: NEPSE

48

Docking Nepal’s Economic Analysis

index (+26.81%) aided by increment in share prices of Non-Life insurance companies.

Likewise, the Commercial banking sub-index (+20.46%) continued to impress investors while the Finance sub-index (+22.68%) gained valuable 123.4 points. The Hydropower subindex (+21.36%) continued with its upward momentum as hydropower stocks continued to provide attractive returns to investors. Also, the ‘Others’ sub-index (+7.69%) posted a marginal growth as the share price of Nepal Telecom failed to achieve desired momentum.

Key Developments Some of the key developments in the capital market during the review period are discussed below:

Docking Nepal’s Economic Analysis

Review

Nepse Index

Figure 18: NEPSE Index performance 1320 1300 1280 1260 1240 1220 1200 1180 1160 1140 1120 1100 1080 1060 1040 1020 1000 12/1/2015

12/31/2015

1/30/2016

2/29/2016 Source: NEPSE

Primary market:

During the review period, the primary market witnessed the issuance of two Further Public Offerings (FPO’s) and two Initial Public 0fferings (IPOs) which included a mutual fund scheme.

All the primary offering received overwhelming response from the market as these offerings were oversubscribed by multiple folds. On the FPO side, Nepal Investment Bank had offered 9,069,388 units of shares with a premium of NPR 501 (USD 4.63) i.e. the issue price was NPR 601 (USD 5.56) per unit and Shikhar Insurance Company had issued 510,988 units of shares at a premium rate of NPR 550 (USD 5) i.e. the issue price was NPR 650 (USD 6) per unit.

On the IPO side, Mero Microfinance Financial Institution had issued

612,000 units shares at face value of NPR 100 (USD 0.92) per unit and Global IME Capital a subsidiary of Global IME bank had issued 8,000,000 units of mutual fund named ‘Global IME Sammunnat Scheme 1’at a face value or NPR 10 (USD 0.1) per unit. The scheme is a seven year closed ended fund, with the issuance the total number of mutual funds schemes operating in Nepal will reach seven.

•

SEBON issue directives:

During the review period, Securities Board of Nepal (SEBON) the apex regulator of capital markets issued several key directives which are highlighted below; •

After starting the full-fledged trading of securities in dematerialized form from January 17, 2016, SEBON has

•

directed all the listed companies to provide the bonus shares and right shares directly into the Demat account of the shareholders.

SEBON has directed all the listed companies to deposit the cash dividend to the respective shareholders’ bank accounts.

This service would help prevent the tendency of cash dividend being frozen and would spare the shareholders’ who have to come to Kathmandu to collect their cash dividend of the inconvenience.

Likewise, SEBON has asked NEPSE to establish two more clearing banks to expedite the clearing process.

Currently there is a single clearing bank i.e. Global IME Bank and as the volume of transactions is expected to increase with the implementation of dematerialization of shares, there

Nefport Issue 24 – April 2016

49

•

•

has been a felt need of other clearing banks.

To discourage anomalies during IPO application process, except for the immediate family members, different account payee checks need to be submitted with every application form. Likewise, while refunding the money received during IPO, the issue managers will have to compulsorily deposit the money into the bank account mentioned in the application form by the investor.

SEBON has made Demat account compulsory for participation in the public issuance of shares in the future. The directive will come into effect form Shrawan 1, 2072(July 16, 2016) for investors within Kathmandu valley while it will be effective from Magh 1, 2073 (January 14, 2017) for investors outside Kathmandu valley. Also, SEBON is working on providing an investor identification number to investors.

SEBON advices investors to be cautious

Although late, SEBON has issued a public notice advising investors to be cautious while investing in the secondary market as the current surge in the market does not reflect the true picture of the economy. Moreover, SEBON has advised investors to carefully analyse the fundamental of the company and the industry before investing in the secondary market.

50

Further Public Offering subscriptions on the rise Contrary to Initial Public Offerings (IPOs) which are more popular and well established instruments to raise capital from the general public, Further Public Offerings (FPOs) which were less known to investors have slowly started gaining popularity amongst listed companies and general investors. Till date only four companies have issued FPOs amongst which three companies have issued shares at premium while one has issued shares at par value. The overwhelming response from general investors during Shikhar Insurance and Nepal Investment Bank’s FPO might lure other listed companies to issue shares at premium in the future using FPOs however, it should be noted that these companies shares were issued amidst bullish trend in the secondary market thus attracting a large number of investors.

In the future, to ensure uniformity, the regulators have to ensure that the premium price offered by the companies validates its true value. As per the Company Act, a company can only issue shares at premium value if: the company has been making profit and distributing bonuses for three consecutive years, its net worth is more than its total liability, and the AGM decides to issue shares of premium value at premium price.

“ Outlook

Since the NEPSE index is in a bull run meaning stock prices are rising or are expected to rise, it has encouraged many small investors to divert higher proportion of their money into capital markets which is likely to provide higher return than the saving accounts which is currently dwindling due to excess liquidity in the banking system.

Moreover, lower interest rate on margin lending has also increased investors risk appetite. Ease of trading due to full-fledged trading of dematerialized securities of listed companies, better than expected second quarterly results of listed companies mainly Banks and Financial Institutions (BFIs), positive political developments easing economic activities and anticipated regulatory changes are other key factors which have provided additional steam to the current surge.

Fundamental analysis cannot rationalize the current uptrend, excess for few stocks, the share prices of most of the key listed companies can be deemed overpriced. Meanwhile, the key ingredient for the current surge has been the volume of transactions in the market. Looking at the level of volume in the market along with improving investors’ confidence the market is more likely to remain bullish in the coming days. However, some retracements can be expected. Yet, at the same time, the investors need to be cautious while making investment decisions as manipulation of shares prices is a common phenomenon in Nepali secondary market.

Docking Nepal’s Economic Analysis

Docking Nepal’s Economic Analysis

Endnotes

Endnotes 1.

Binod Ghimire, “Reconstruction Bill passed unopposed”, The Kathmandu Post, December 17, 2015, http://kathmandupost.ekantipur.com/news/201512-17/reconstruction-bill-passed-unopposed.html 2.

“Sushil Gyawali appointed Reconstruction Authority CEO”, The Kathmandu Post, December 25, 2015, http://kathmandupost.ekantipur.com/news/201512-25/cabinet-meeting-underway-at-singha-durbar.html 3.

Cabinet Decision, Government of Nepal, December 20, 2015, http://opmcm. gov.np/uploads/decision/file/Paus_5_72_20151221104936.doc 4. “Morcha refuses to call off agitations”, Nepali Times, December 22, 2015, http://www.nepalitimes.com/blogs/thebrief/2015/12/22/morcha-refuses-to-call-off-agitation/ 5. Statement of Nepal, Ministry of External Affairs – Government of India, December 21, 2015, http://mea.gov.in/press-releases.htm?dtl/26218/Statement_on_Nepal 6.

Kamal Dev Bhattarai; Roshan Sedhai; Binod Ghimire, “House endorses bill amid the din”, The Kathmandu Post, January 24, 2016, http://kathmandupost.ekantipur.com/news/2016-01-24/house-endorses-bill-amid-the-din. html 7.

“Progressive but incomplete says Morcha”, The Kathmandu Post, January 24, 2016, http://kathmandupost.ekantipur.com/news/2016-01-24/progressive-but-incomplete-says-morcha.html 8. “Over 50 cargo trucks enter via Birgunj-Raxaul border”, The Kathmandu Post, February 5, 2016, http://kathmandupost.ekantipur.com/news/201602-05/locals-set-ablaze-morcha-set-up-tent-at-birgunj-border.html 9.

“List of Agreements and MOUs exchanged during the State Visit of Prime Minister of Nepal to India”, Press Information Bureau – Government of India, February 20, 2016, http://www.pib.nic.in/NEWSITE/erelease.aspx 10. Kamal Dev Bhattarai, “Deuba defeats Poudel”, The Kathmandu Post, March 8, 2016, http://kathmandupost.ekantipur.com/news/2016-03-08/ deuba-defeats-poudel.html 11. “Press Release issued by Embassy of Nepal, Beijing on Bilateral Talks”, Ministry of Foreign Affairs, March 21, 2016, https://www.mofa.gov.np/visitof-rt-hon-to-china/ 12. Anil Giri, “Nepal signs deal to gain access to Chinese ports”, The Kathmandu Post, March 22, 2016, http://kathmandupost.ekantipur.com/news/201603-22/nepal-signs-deal-to-gain-access-to-chinese-ports.html 13. “Joint Press Statement between the People’s Republic of China and Nepal”, Ministry of Foreign Affairs, March 23, 2016, https://www.mofa.gov.np/ joint-press-statement/ 14. “China economic growth slowest in 25 years”, BBC, January 19, 2016, http://www.bbc.com/news/business-35349576 15. David Taylor, “Chinese economy growing at slowest rate in 25 years; 2016 growth targets ‘ambitious’”, ABC, March 7, 2016, http://www.abc. net.au/news/2016-03-07/chinas-economy-growing-at-slowest-rate-in-25years/7226460 16. “China PM predicts ‘battle’ for growth as target cut”, BBC, March , 2016, http://www.bbc.com/news/business-35723198 17. “Fresh data confirms Chinese economic slowdown”, BBC, March 1, 2016, http://www.bbc.com/news/business-35693794 18. Brian Wheeler and Alex Hunt, “The UK’s EU referendum: All you need to know”, BBC, March 1, 2016, http://www.bbc.com/news/uk-politics-32810887 19. Fred Imbert, “’Brexit’ could deal major economic, political blow to EU”, CNBC, March 1, 2016, http://www.cnbc.com/2016/03/01/brexit-could-dealmajor-economic-political-blow-to-eu.html 20. Patrick Wintour and Rajeev Syal, “Brexit would damage EU and UK ‘politically and economically’”, the guardian, March 6, 2016, http://www.theguardian.com/politics/2016/mar/06/brexit-damage-eu-uk-politically-economically-italian-minister-padoan

21. Clifford Krauss, “Oil Prices: What’s Behind the Drop? Simple Economics”, The NY Times, March 8, 2016, http://www.nytimes.com/interactive/2016/ business/energy-environment/oil-prices.html?_r=0 22. Kenneth Rogoff, “What’s behind the drop in oil prices?”, World Economic Forum, March 2, 2016, https://www.weforum.org/agenda/2016/03/what-sbehind-the-drop-in-oil-prices 23. Government of India Ministry of Finance, “Key features of Budget 20162017”, http://indiabudget.nic.in/ub2016-17/bh/bh1.pdf 24. “India Budget Analysis 2016-17”, Nishith Desai Associates, March 1, 2016, http://www.nishithdesai.com/information/research-and-articles/nda-hotline/ nda-hotline-single-view/article/india-budget-2016-worth-a-few-oscarsbut-not-a-clean-sweep.html?no_cache=1&cHash=a226725546e24b4cc45bdb1dced68f49 25. Gaurav Sharma, “India’s Investor Friendly, Commodity Heavy Budget Gets Cautious Market Welcome”, Forbes, March 8, 2016, http://www.forbes. com/sites/gauravsharma/2016/03/08/indias-investor-friendly-commodity-heavy-budget-gets-cautious-market-welcome/#c40c3847b588 26. Arvind P. Datar, “Nothing radical or revolutionary”, The Hindu, March 1, 2016, http://www.thehindu.com/opinion/columns/budget-2016-nothing-radical-or-revolutionary/article8296637.ece?ref=relatedNews 27. “Union Budget 2016/17: India cuts 40pc in aid to Nepal”, The Kathmandu Post, March 1, 2016, http://kathmandupost.ekantipur.com/news/2016-0301/union-budget-2016-17-india-cuts-40pc-in-aid-to-nepal.html 28. “White Paper on the Current Economic Situation and Immediate way Forward”, Ministry of Finance, November 24, 2015, http://mof.gov.np/uploads/ document/file/White_papaer_final_20151125100100.pdf 29. “Preliminary production projection of some major summer crops Fiscal Year 2072/073”, Ministry of Agricultural Development, Mid-November to Mid-December, 2015.

30. Ibid.

31. “Wheat output expected to fall ‘6 percent’, The Kathmandu Post, January 31, 2016, http://kathmandupost.ekantipur.com/news/2016-01-31/wheatoutput-expected-to-fall-6-percent.html 32. “Domestic rice mills in trouble..”, Gorkhapatra, January 11, 2016, http:// gorkhapatraonline.com/news/19474 33. “Domestic rice industry in trouble..”, Gorkhapatra, January 11, 2016, http:// gorkhapatraonline.com/news/19474 34. Bhusan Yadav, “Paddy exports barred by India’s new trade policy, January 6, 2016, http://kathmandupost.ekantipur.com/printedition/news/2016-01-06/ paddy-exports-barred-by-indias-new-trade-policy.html 35. “Govt all set to form commission to boost agriculture sector”, The Kathmandu Post, January 28, 2016, http://kathmandupost.ekantipur.com/news/201601-28/govt-all-set-to-form-commission-to-boost-agriculture-sector.html 36. Chandrakishore (journalist) in interaction with the author, February 29, 2016.

37. Aman Koirala, “Low price, higher transportation costs hit sugarcane farmers”, The Kathmandu Post, January 11, 2016, http://kathmandupost. ekantipur.com/news/2016-01-11/low-price-high-transportation-costs-hitsugarcane-farmers.html 38. Aman Koirala, “Sugarcane farmers prefer dealing with middlemen”, The Kathmandu Post, January 27, 2016, http://kathmandupost.ekantipur.com/ news/2016-01-27/sugarcane-farmers-prefer-dealing-with-middlemen.html 39. Aman Koirala, “Cane farmers prefer doing business with Indian mills”, The Kathmandu Post, February 26, 2016, http://kathmandupost.ekantipur.com/ news/2016-02-26/cane-farmers-prefer-doing-business-with-indian-mills. html 40. Sujan Dhungana, “Birat brings further 132KL petrol, out to sell at Rs 155 per liter”, Republica, February 23, 2016, http://www.myrepublica. com/economy/story/37605/birat-brings-further-132kl-petrol-out-to-sell-

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at-rs-155-per-liter.html#sthash.sMWGZmzp.dpuf 41. Rajesh Khanal, “Govt team in Beijing for fuel-import talks”, The Kathmandu Post, March 4, 2016, http://kathmandupost.ekantipur.com/news/2016-0304/govt-team-in-beijing-for-fuel-import-talks.html 42. “BPPL to get NOC nod to sell petrol”, The Himalayan Times, March 8, 2016, https://thehimalayantimes.com/business/bppl-get-noc-nod-sell-petrol/ 43. Sujan Dhungana, “Birat brings further 132KL petrol, out to sell at Rs 155 per liter”, Republica, February 23, 2016, http://www.myrepublica.com/economy/ story/37605/birat-brings-further-132kl-petrol-out-to-sell-at-rs-155-per-liter. html#sthash.sMWGZmzp.dpuf 44. SanjeevGiri, “Energy Emergency scheme to be shown to PM today”, The Kathmandu Post, February 9, 2016, http://kathmandupost.ekantipur.com/ news/2016-02-09/energy-emergency-scheme-to-be-shown-to-pm-today. html 45. “Govt to declare ‘energy emergency’ this week”, The Kathmandu Post, January 30, 2016, http://kathmandupost.ekantipur.com/news/2016-01-30/ govt-to-declare-energy-emergency-this-week.html 46. S.B. Pun, “The 400 kV Dhalkebar-Muzaffarpur 140 km Transmission Line”, Hydro Nepal, January 2014 47. “NEA conducts final tests on new Nepal-India transmission line”, The Himalayan Times, February 19, 2016, https://thehimalayantimes.com/business/ china-to-make-permanent-residency-easier-for-outsiders/ 48. “Norwegian firm pulls out of $1.5 bln Nepal hydro project”, Reuters, January 13, 2016, http://www.reuters.com/article/nepal-hydropower-norway-idUSL3N14X22W20160113 49. Sujeev Shakya, “Reverse Gear”, The Kathmandu Post, February 2, 2016, http://kathmandupost.ekantipur.com/news/2016-02-02/reverse-gear.html 50. “Norwegian company pulls out of Tamakoshi III project”, The Kathmandu Post, January 3, 2016, http://kathmandupost.ekantipur.com/news/201601-03/norwegian-company-pulls-out-of-tamakoshi-iii-project.html 51. Dhruba Bhandari, “Regulatory challenges in hydropower development in Nepal”, Econ-ity, February 5, 2016, http://econitynepal.com/tag/statkraft/ 52. “Government begins process to light up streets with solar power”, The Himalayan Times, February 28, 2016, http://thehimalayantimes.com/kathmandu/govt-begins-process-to-light-up-streets-with-solar-power/ 53. “Govt planning to install solar-run street lamps”, The Kathmandu Post, December 24, 2015, http://kathmandupost.ekantipur.com/news/2015-1224/govt-planning-to-install-solar-run-street-lamps.html 54. “Here comes the sun”, The Kathmandu Post, December 9, 2015, http:// kathmandupost.ekantipur.com/printedition/news/2015-12-09/here-comesthe-sun.html 55. “Blueprint finalized for the New Bus Park”, March 9th 2016, The Himalayan Times, http://thehimalayantimes.com/kathmandu/new-bus-park-state-artfacilities/ 56. “Himalaya, the biggest FDI for Nepal’s aviation sector”, March 6th 2016, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/ news/2016-03-06/himalaya-all-set-to-start-ops.html 57. “NAC finally approves four Chinese aircraft”, March 4th 2016, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/news/201603-04/nac-agrees-to-receive-aircraft-with-conditions.html 58. “Birgunj-Pathlaiya road section to be upgraded as per international standard”, March 1st 2016, My Republica, http://www.myrepublica.com/society/ story/37929/birgunj-pathlaiya-road-section-to-be-upgraded-to-six-lanes. html 59. “Strikes delay the construction of broad gauge railway”, January 20th 2016, The Himalayan Times, http://thehimalayantimes.com/nepal/ broad-gauge-railway-construction-delayed/ 60. “Government finally bringing in earthquake-resistant house”, December 25th 2015, The Kathmandu Post, http://kathmandupost.ekantipur.com/ printedition/news/2015-12-25/17-earthquake-resistant-house-designsproposed.html

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61. “Barrage to be built for irrigation on the Sapta Koshi”, December 19th 2015, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/ news/2015-12-19/barrage-to-be-built-on-sapta-koshi.html 62. “Construction of first animal-friendly road to begin in Chitwan”, January 20th 2016, The Kathmandu Post, http://thehimalayantimes.com/nepal/animalfriendly-road-to-be-constructed-in-chitwan/ 63. “NT restores 335 towers hit by quake”, The Kathmandu Post, January 21, 2016, http://kathmandupost.ekantipur.com/news/2016-01-21/nt-restores335-towers-hit-by-quake.html 64. “TeliaSonera divests its holding in Ncell”, TeliaSonera, December 21, 2015, http://www.teliasonera.com/en/newsroom/news/2015/teliasonera-divestsits-holding-in-ncell-/ 65. “ICT Development Index 2015- Country Card”, ITU, http://www.itu.int/net4/ ITU-D/idi/2015/#idi2015countrycard-tab&NPL 66. “Best time to take a home loan”, The Himalayan Times, February 27, 2016, Accessed on March 14, 2016,https://thehimalayantimes.com/real-estate/ best-time-to-take-a-home-loan/ 67. “Govt drafts land acquisition guideline”, The Himalayan Times, February 24, 2016, Accessed on March 14, 2016,https://thehimalayantimes.com/ business/government-drafts-land-acquisition-guideline/ 68. “New bylaws disappoint developers”, The Himalayan Times, January 9, 2016, Accessed on March 14, 2016,https://thehimalayantimes.com/real-estate/nlhda-presumes-that-projects-with-planning-permits-will-dip-by-25per-cent-this-fiscal/ 69. “NRB raises loan ceiling for microfinance institutions”, My Republica, January 6, 2016, Accessed on March 14, 2016,http://myrepublica.com/ economy/story/34470/nrb-raises-loan-ceiling-for-microfinance-institutions. html 70. Binod Ghimire, “Rs 1 trillion SSDP set to replace SSRP”, The Kathmandu Post, December 26. 2015, http://kathmandupost.ekantipur.com/ news/2015-12-26/rs-1-trillion-ssdp-set-to-replace-ssrp-school-sectordevelopment.html 71. “Discussion starts on bill to amend Education Act”, The Kathmandu Post , February 2, 2016, http://kathmandupost.ekantipur.com/news/2016-02-02/ discussion-starts-on-bill-to-amend-education-act.html 72. “Education Act: Pvt sector lobbies for favorable amendments”, The Kathmandu Post, January 10, 2016, http://kathmandupost.ekantipur.com/ news/2016-01-10/education-act-pvt-sector-lobbies-for-favourable-amendments.html 73. “Schools directed to keep unused teachers and grants in pool”, The Himalayan Times, February 19, 2016, https://thehimalayantimes.com/kathmandu/ schools-directed-to-keep-unused-teachers-and-grants-in-pool/ 74. “Indian schools start registration process”, The Kathmandu Post, February 4, 2016, http://kathmandupost.ekantipur.com/news/2016-02-04/indian-schools-start-registration-process.html 75. Kokila KC, “HSEB publishes Grade XI results”,, The Himalayan Times, January 14, 2016, https://thehimalayantimes.com/kathmandu/hseb-publishes-grade-xi-results/ 76. “HSEB published Grade 11 result”, The Kathmandu Post, January 19, 2015, http://kathmandupost.ekantipur.com/news/2015-01-19/hseb-publishesgrade-11-result.html 77. “215 temporary schools constructed in 17 districts”, The Kathmandu Post, December 29, 2015, http://kathmandupost.ekantipur.com/news/2015-1229/215-temporary-schools-constructed-in-17-districts.html 78. “Letter grading system in plus-two level from new session”, The Himalayan Times, February 24, 2016, https://thehimalayantimes.com/kathmandu/lettergrading-system-in-plus-two-level-from-new-session/ 79. “EU provides 480 Million Rupees for Education in Nepal”, February 22, 2016, http://eeas.europa.eu/delegations/nepal/documents/press_corner/2016.02.22_en.pdf..pdf 80. “PABSON rejects school fee fixation criteria”, The Himalayan Times,

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Endnotes Endnotes

March 11, 2016, http://thehimalayantimes.com/kathmandu/pabson-rejects-school-fee-fixation-criteria 81. Ministry of Health and Population 82. “699 health facilities ‘rebuilt’, The Kathmandu Post, http://kathmandupost. ekantipur.com/printedition/news/2016-03-09/699-health-facilities-rebuilt. html 83. “UNICEF to restore health facilities in quake-hit areas”, The Himalayan Times, http://thehimalayantimes.com/kathmandu/unicef-to-restore-healthfacilities-in-quake-hit-areas/ 84. “A Looming Crisis”, The Kathmandu Post, http://kathmandupost.ekantipur. com/printedition/news/2016-03-15/a-looming-crisis.html 85. District Public Health Office (DPHO) 86. “Malnutrition stalks children in Banke”, The Kathmandu Post, http:// kathmandupost.ekantipur.com/printedition/news/2015-12-31/malnutrition-stalks-children-in-banke.html 87. Over 50% children suffer from acute malnutrition, The Himalayan Times, http://thehimalayantimes.com/nepal/over-50-children-suffer-from-acutemalnutrition/ 88. “Out of the Shadows”, The Kathmandu Post, 4th March 2016, http://kathmandupost.ekantipur.com/printedition/news/2016-03-04/out-of-the-shadows-20160304085629.html 89. Second National Summit of Health and Population Scientists,2016 http:// info.sagunpaudel.com.np/2016/01/second-national-summit-of-health-and. html#sthash.9ZLGm7Wy.dpbs 90. “Valley’s heritage sites await tourists’ return”, February 4,2016, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/news/201602-04/valleys-heritage-sites-await-tourists-return.html 91. “Arrivals hit 6-year low as quake, agitation take toll”, January 22,2016, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/ news/2016-01-22/arrivals-hit-6-year-low-as-quake-agitation-take-toll.html 92. “First batch of Chinese tourists get free visas”, January 8,2016, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/news/201601-08/first-batch-of-chinese-tourists-get-free-visas.html 93. “Number of trekkers down only 6 percent in 2015”, January 23,2016, My Republica, http://myrepublica.com/economy/story/35623/number-of-trekkers-down-only-6-percent-in-2015.html 94. “Tourism earnings down 18pc”, December 12,2015, The Kathmandu Post http://kathmandupost.ekantipur.com/printedition/news/2015-12-20/tourismearnings-down-18pc.html 95. “Nepal Tourism Board has a new CEO, finally”, December 18,2015, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/ news/2015-12-18/nepal-tourism-board-has-new-ceo-finally.html 96. “NTB’s board gets full shape”, February 12,2016, The Himalayan Times, http://thehimalayantimes.com/business/ntbs-board-gets-full-shape/ 97. “Nepal, Bhutan agree on six-point agenda”, January 9,2016, The Kathmandu Post , http://kathmandupost.ekantipur.com/printedition/news/2016-0109/nepal-bhutan-agree-on-six-point-agenda.html 98. “Revival of tourism Concrete efforts required”, February 1, 2016, The Himalayan Times, http://thehimalayantimes.com/opinion/revival-of-tourism-concrete-efforts-required/ 99. “Nepal in Nat Geo’s Cool List amid tourism gloom”, December 9, 2015, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/ news/2015-12-09/nepal-in-nat-geos-cool-list-amid-tourism-gloom.html 100. “Tiger Tops offers new style elephant tourism”, January 23,2016, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/news/201601-23/tiger-tops-offers-new-style-elephant-tourism.html 101. “Commercial paragliding to be started in Parbat”, February 2, 2016, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/ news/2016-02-02/commercial-paragliding-to-be-started-in-parbat.html 102. “Ten Nepali hotels included in Travelers’ Choice 2016 list”, January 23.2016, My Republica, http://myrepublica.com/society/story/35618/ten-nepali-ho-

tels-included-in-travelers-choice-2016-list.html 103. “Despite measure, Thamel’s night life plan put on hold”, January 6,2016, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/ news/2016-01-06/despite-measures-thamels-night-life-plan-put-on-hold. html 104. “FNCCI asks government to waive visa fees to boost arrivals”, December 23,2015, The Kathmandu Post, http://kathmandupost.ekantipur.com/ printedition/news/2015-12-23/fncci-asks-govt-to-waive-visa-fees-to-boostarrivals.html 105. “Two new trekking routes explored in Kaski district”, January 6,2016, The Himalayan Times, https://thehimalayantimes.com/nepal/two-new-trekkingroutes-explored-in-kaski-district/ 106. “India, China present big tourism opportunity: Joshi”, December 24, 2015, The Kathmandu Post, http://kathmandupost.ekantipur.com/printedition/ news/2015-12-24/india-china-present-big-tourism-opportunity-joshi.html 107. “Import, export activities at Sirsiya Dry Port jump”, The Kathmandu Post, February 7, 2016, http://kathmandupost.ekantipur.com/printedition/ news/2016-02-07/import-export-activities-at-sirsiya-dry-port-jump.html 108. “Imports of coal, clinker rise through Kakarbhitta”, The Kathmandu Post, February 6, 2016, http://kathmandupost.ekantipur.com/printedition/ news/2016-02-06/imports-of-coal-clinker-rise-through-kakarbhitta.html 109. “Government: Non-tariff barriers slowing exports to be identified”, The Kathmandu Post, February 2, 2016,http://kathmandupost.ekantipur.com/ printedition/news/2016-02-03/government-non-tariff-barriers-slowing-exports-to-be-identified.html 110. “DoC plans ‘Nepal National Single Window’ system”, The Kathmandu Post, January 28, 2016, http://kathmandupost.ekantipur.com/printedition/ news/2016-01-28/doc-plans-nepal-national-single-window-system.html 111. “NEFFA explores alternatives to minimize losses faced by Nepali traders”, The Himalayan Times, January 10, 2016, http://thehimalayantimes.com/business/ neffa-explores-alternatives-to-minimise-losses-faced-by-nepali-traders/ 112. “DoCSM backs calls for establishing Garment EPZ”, The Himalayan Times, December 19, 2015,http://thehimalayantimes.com/business/docsm-backscalls-for-establishing-garment-epz/ 113. “India gives Nepal transit to Bangladesh”, Newage, February 21, 2016,http://newagebd.net/204915/india-gives-nepal-transit-bangladesh/ 114. GDP as per Economy Survey, 2015 115. “External debt swell as rupee plummets”, accessed on March 21,2016,The Kathmandu Post,http://kathmandupost.ekantipur.com/news/2016-03-21/ external-debt-swells-as-rupee-plummets.html 116. “Trading up”, The Kathmandu Post, January 13, 2016, http://kathmandupost. ekantipur.com/printedition/news/2016-01-13/trading-up.html 117. “Canada helps Nepal rebuild and prepare for future earthquakes”, IDRC, February 29, 2016,Accessed on March 7, 2016, http://www.idrc.ca/EN/ Media/Pages/News-Release-Canada-helps-Nepal-rebuild-prepare-forearthquakes.aspx 118. “Signing of Grant Agreement with Nepal: Hospital reconstruction and bridge construction to supporting rehabilitation and recovery in regions affected by the Nepal earthquake”, Japan International Cooperation Agency, February 18, 2016, Accessed on February 25, 2016,http://www.jica.go.jp/english/ news/press/2015/160218_01.html 119. “Shifting donor priorities” The Kathmandu Post, February 04 , 2016, Accessed on February 25, 2016,http://kathmandupost.ekantipur.com/printedition/news/2016-02-17/shifting-donor-priorities.html 120. “Agreement with the World Bank” Aid Management Platform, February 04, 2016, Accessed on February 25, 2016, http://amis.mof.gov.np/portal/ node/39 121. “ADB ‘dissatisfied’ with performance of major energy sector projects “The Himalayan Times, January 31, 2016, Accessed on February 25, 2016,http://thehimalayantimes.com/business/adb-dissatisfied-with-performance-of-major-energy-sector-projects/

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Endnotes

122. “ADB ready to boost annual lending to Nepal by 60pc” The Kathmandu Post, January 22, 2016, Accessed on February 24, 2016,http://kathmandupost. ekantipur.com/printedition/news/2016-01-22/adb-ready-to-boost-annuallending-to-nepal-by-60pc.html 123. “Just 4 % of foreign aid spent so far this year” The Kathmandu Post, January 26, 2016, Accessed on February 25, 2016,http://kathmandupost.ekantipur. com/printedition/news/2016-01-26/just-4-%-of-foreign-aid-spent-so-far-thisyear.html 124. “Nepal to seek funding from AIIB to implement mega projects” The Himalayan Times, January 20, 2016, Accessed on February 23, 2016, http:// thehimalayantimes.com/business/nepal-to-seek-funding-from-aiib-to-implement-mega-projects/ 125. “Construction of Regional Crisis Management Center Begins” Embassy of the United States, Kathmandu, Nepal, January 15, 2016, Accessed on February 23, 2016, http://nepal.usembassy.gov/pr-01-15-2016.html 126. “Germany and Nepal sign Agreements on Euro 30 million for Support Programs for Earthquake Rehabilitation” German Embassy Kathmandu, Accessed on February 15,2016, http://www. kathmandu.diplo.de/Vertretung/kathmandu/en/05wi-wz/development__cooperation/Germany_20and_20Nepal_20sign_20Agreements_20on_20Euro_2030_20million_20for_20Support_20Programs_20for_20Earthquake_20Rehabilitation.html 127. “23pc funding pledges secured “The Himalayan Times, January 14, 2016, Accessed on February 22, 2016,http://thehimalayantimes.com/ business/23pc-funding-pledges-secured/ 128. “Current Macroeconomic and Financial Situation of Nepal (Based on Six Months’ Data of 2015/16)”, Nepal Rastra Bank, February, 2016, http:// nrb.org.np/ofg/current_macroeconomic/CMEs_Six_%20Months_%20English.%20final.pdf 129. Ibid.

130. Pushpa Raj Koirala, “Foreign job-aspirants hit by closure of manpower agen-

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cies”, Republica, March 9, 2016, http://www.myrepublica.com/economy/ story/38448/foreign-job-aspirants-hit-by-closure-of-manpower-agencies.html 131. “Police raid 17 capital-based manpower agencies”, Republica, February 24, 2016, http://www.myrepublica.com/feature-article/story/37647/ police-raid-17-capital-based-manpower-agencies.html 132. Om Astha Rai, “Learn to earn”, Nepali Times, February 19-25, http://nepalitimes.com/article/nation/Nepali-overseas-workers-want-to-learn-newskills-before-going-abroad,2882 133. “Our remit”, Nepali Times, February 19-25, http://nepalitimes.com/article/ editorial/Nepal-economy-supported-by-remittance-money,2874 134. “Kumari Bank, NCC Bank sign merger pact”, accessed on January 14,2016, The Kathmandu Post,http://kathmandupost.ekantipur.com/printedition/ news/2016-01-14/kumari-bank-ncc-bank-sign-merger-pact.html 135. “Bank of Kathmandu, Lumbini Bank Ltd sign MoU for merger”, accessed on 24 December, 2015, The Republica, http://www.myrepublica.com/economy/ story/33580/bank-of-kathmandu-lumbini-bank-ltd-sign-mou-for-merger.html 136. “Civil Bank, ILFC merger process”, accessed on January 25,2015, The Himalayan Times, https://thehimalayantimes.com/business/civil-bank-ilfc-initiate-merger-process/ 137. “Siddhartha Bank Signs MOU for merger with Business Universal Development Bank Limited” accessed on January 7, 2016, www.siddharthabank.com, http://www.siddharthabank.com/2016/01/07/News/ Siddhartha-Bank-Signs-MOU-for-merger-with-Business-Universal-Development-Bank-Limited/55/ 138. “After BFIs, insurance companies to be told to hike paid-up capital” accessed on 6 March, 2016, Republica, http://myrepublica.com/economy/ story/26075/after-bfis-insurance-companies-to-be-told-to-hike-paid-upcapital.html#sthash.7byzICvG.dpuf 139. “NRB to float bonds worth NPR 67.50 billion”, accessed on 5 March, 2016, The Himalayan Times, http://thehimalayantimes.com/business/nrb-floatbonds-worth-rs-67-50-billion/

Nepal Economic Forum (NEF) is a premier private-sector led economic policy and research organization that seeks to re-define the economic development discourse in Nepal. Established Nepal Economic Forum (NEF) is a premier private-sector led economic policy and research organiin 2009 as a not-for-profit organization under the beed (www.beed.com.np) umbrella, NEF is zation that seeks to re-define the economic development discourse in Nepal.inEstablished in 2009NEF as a thought center that is working to create positive transformations policy reforms. a not-for-profit organization beed (www.beed.com.np) umbrella, NEF is sector a thought center that stands out in being able under to make significant strides to bring the private perspectives and engage withpositive both the public and private thestands development discourse. is working to create transformations in policysectors reforms.in NEF out in being able toNEF makeis currently a recipient of the Open Society Foundations’ Think Tank Fund. significant strides to bring the private sector perspective and engage with both the public and private sectors in the development discourse. NEF is currently a recipient of the Open Society Foundations’ NEF works in partnership with many Nepali and international institutions in its quest to Think Tank Fund. mainstream the discourse on the Nepali economy, which has not been given the necessary space it deserves.

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NEF operates in the domain of Development consulting through its devCon division. It works Second, through the Center for Public, Private and Community Partnerships (PPCP), the partwith a variety of bilateral, multilateral, national and international NGOs in the areas of policy nerships discourse is further elaborated through addition of the enterprise community dimension to the sectoral existing research, economic analysis, value chain analysis, development, models of public privateprivate partnerships.

The concept stems from the need to integrate the commustudies and public dialogue. nity dimension to economic development strategies especially as Nepal moves towards a federated With transparent systems, high standards conflict of is interest disclosures, strong structure.

Apart from financial standal one interventions, the PPCPofperspective integrated in many of the support of beed back-end infrastructure, access to high quality global and local human resources work that NEF and beed initiate. and firms, NEF is poised to set high delivery and ethical standards for firms operating in Nepal.

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@NefNepal

Nepal Economic Forum

With transparent financial systems, high standards of conflict of interest disclosures, strong support of beed back-end infrastructure, access to high quality global and local human resources and firms, NEF is poised to set high delivery and ethical standards for firms operating in Nepal.

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nefport Docking Nepal’s Economic Analysis April 2016 OCTOBER 2014| |Issue IssuE 24 18