Page 1

NEPAL ECONOMIC FORUM

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

ISSUE 33 | JUNE 2018

NEPAL ECONOMIC FORUM

INSURANCE SPECIAL

DOCKING NEPAL’S ECONOMIC ANALYSIS

DOCKING NEPAL’S ECONOMIC ANALYSIS ISSUE 33 | JUNE 2018


NEF PROFILE NEF PROFILE

Nepal Economic Forum (NEF) is a premier private-sector led economic policy and research organisation that seeks to redefine the economic development discourse in Nepal. Established in 2009 as a not-for-profit organisation under the beed (www.beed.com.np) umbrella, NEF is a thought center that is working to create positive transformations in policy reforms. One of the big updates for NEF this year was its feature in the list of Top Think Tanks in Southeast Asia and the Pacific in the 2017 Global Go To Think Tank Index. The report was released by the Think Tanks and Civil Societies Program under University of Pennsylvania. NEF stands out in being able to make 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’ Think Tank Fund.

NEPAL ECONOMIC FORUM

NEF works in partnership with many Nepali and international institutions in its quest to mainstream the discourse on the Nepali economy, which has not been given the necessary space it deserves. NEF has partnered with the Himalayan Consensus Institute (HCI) to facilitate the development of alternative development paradigms and successfully held the second Himalayan Consensus Summit 2017 in March 2017.

NEF BROADLY WORKS UNDER THREE AREAS:

BPRC

The Business Policy Research 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 publication and conducting neftalk, a platform for policy discourse.

PPCP

Through the Center for Public, Private and Community Partnerships (PPCP), the partnerships discourse is further elaborated through addition of the community dimension to existing models of public private partnerships. Apart from standalone interventions, the PPCP perspective is integrated in the work that NEF and beed initiate. NEF operates in the domain of Development Consulting through its devCon division in conjunction with beed management.. 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 and public private dialogue.

We are striving to ensure financial sustainability for NEF to complement the support it currently receives from beed management and the Open Society Foundations. If you are interested to support NEF, please do get in touch with sujeev.shakya@beed.com.np or niraj.kc@beed.com.np


CONTENTS CONTENTS June 2018 | ISSUE 33

NEPAL FACTSHEET   4 EDITORIAL   5

1

GENERAL OVERVIEW   7 Political Overview 8 International Economy  13

2

MACROECONOMIC OVERVIEW

3

SECTORAL REVIEW   25

17

Agriculture   26 Energy   30 Infrastructure   33 Information and Communication Technology   37 Real Estate   39 Education   40 Health   43 Tourism   45 Trade and Debt   48 Foreign Aid   51 Remittance   54

4

MARKET REVIEW   57

5

INSURANCE SPECIAL 67

6

Endnotes   78

7

NEF Profile   81

Banking and Insurance  58 Capital Market   63


FACTSHEET NEPAL FACTSHEET

KEY ECONOMIC INDICATORS GDP

USD 23.31 billion

Rank

105

GNI per capita (Atlas) Rank GNI (PPP)

USD 730 196 USD 2500

Rank

187

Gross Capital Formation (% of GDP

28%

HDI Rank

0.558 144

GDP Growth rate (%) Inflation (annual %) Agricultural growth rate (annual %) Industrial growth rate (annual %) Service Sector growth rate (annual %)

figure from Human Development Reports of the UNDP, Right Table - Budget 2017/18- Ministry of Finance, May 2017

6.9% 3.5% 5.3% 11.0% 6.9%


EDITORIAL Issue 33:June 2018 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: Aashna Shrestha Apekshya Shah Arya Awale Niraj K.C Nischal Dhungel Raju Tuladhar Rojesh Bhakta Shrestha Sajal Mani Dhital Samridhi Panta Samita Shretha Shikshya Gyawali Shraddha Gautam Design & Layout: Ultimate Marketing (P.) Ltd. info@marketingultimate.com This issue of nefport takes into account news updates from February 15 – May 29, 2018. The USD conversion rate for this issue is NPR 106.24 to a dollar, the quarterly average for this issue. Reproduction is authorised provided the source is acknowledged. The views and opinions expressed in the article/publication are those of the author(s) and do not necessarily reflect the official opinion of Nepal Economic Forum. Neither the organisation nor any person acting on their behalf may be held responsible for the use which may be made of the information contained therein. NEF Advisory Board: Arnico Panday Basudha Gurung Kul Chandra Gautam Mahendra Krishna Shrestha Mallika Shakya Shankar Sharma

This quarter has been remarkable for Nepal with the left-alliance, that swept to victory in historic federal and provincial elections, forming the government. This development is a huge milestone for the country given that after years of transient governments we finally have a government that has been sworn in for five years, and will hopefully serve its entire tenure. At last, political issues no longer hold the centre stage, and after decades, issues like economic growth, development and job creation has been prioritised by the political parties. The people of Nepal have high expectations from the new government, and some positive developments have added to the optimism. Considering the aspiration of federalism, the government recently announced the budget of NPR 1.315 trillion (USD 12.38 billion). The budget aims to end extreme poverty, achieve rapid economic growth and build a prosperous and socialist economy. In the last quarter, NEF has been engaged in the discourse on Doing Business in Federated Nepal. We have conducted research and held several discussions on the topic and have collected opinions from key stakeholders in different fields. Discussions have converged on what the new federated structure means to Nepal’s business and economy. NEF is also collaborating with Jindal School of Public Policy and Governance to develop a Sub-national Government Monitoring and Evaluation. This multi-dimensional indicator approach will attempt to capture the business climate, economic environment and governance capabilities of municipal governments. This evidence-based approach will assist policymakers in monitoring the decentralisation process and allocating resources to the SNGs (Sub National Governments). NEF continues to strive to analyse how Nepal will take shape as an investment destination and how the Nepali economic development paradigm will shape up in the days to come. As Secretariat to the Himalayan Consensus Institute, NEF successfully hosted the third Himalayan Consensus Summit from 2325 March 2018. In keeping with NEF’s aim to work on regional platforms, a meeting of Himalayan Consensus Think Tank Consortium was successfully held in Delhi in January earlier this year. NEF was once again featured in the Go to Think Tank list in 2017. We continue to be overwhelmed with the support we receive from various quarters to keep the humble work going. This edition is Insurance Special, highlighting the future challenges and opportunities in the sector. We would like to thank all the key contributors especially Mr. Chiranjibi Chapagain (Chairman, Nepal Insurance Board), Mr. Mahendra Krishna Shrestha (Chairman, Himalayan General Insurance), Mr. Nirmal Shrestha (General Manager, MetLife) and Mr. Vijaya Bahadur Shah (CEO, Nepal Insurance Company Limited) for helping us make this issue an enriching one. We continue to look forward to your valuable comments and suggestions. Sujeev Shakya Chair, Nepal Economic Forum


1 NEFPORT ISSUE 33 – JUNE 2018

GENERAL

OVERVIEW

7


8

DOCKING NEPAL’S ECONOMIC ANALYSIS

POLITICAL OVERVIEW POLITICAL OVERVIEW With the left alliance securing a majority in the Federal Parliament, Khadga Prasad Oli became the first Prime Minister of Federal Nepal, and Bidhya Devi Bhandari was elected as the President of Nepal for a second term. The formation of Nepal Communist Party (NCP) created by the unification of the Communist Party of Nepal (Unified Marxist Leninist) (CPN-UML) and Communist Party of Nepal (Maoist Centre) (CPN-MC) was also observed this quarter. One of the major actions that the Oli government commenced during the review period was dismantling the transport syndicate that was plaguing the transport sector of the country. Additionally, the Oli government has decided to trim bureaucratic spending due to the gloomy state of Nepali economy. PM Oli sworn in as 38th Prime Minister of Nepal: With the left

alliance securing a clear majority in the Federal Parliament elections, Prime Minister KP Sharma Oli secured a three-fourths majority at the 275-member strong House of Representatives.1 While Oli emerged as the most powerful executive head of the nation since 1990, Nepali Congress (NC) stood in the opposition.2 President Bidhya Devi Bhandari assumes office for the second term: Endorsed by the left alliance,

President Bidhya Devi Bhandari has been re-elected as the President of Nepal.3 President Bhandari received 39,275 votes, while NC lawmaker Kumari Rai received 11,730 votes.

Formation of Nepal Communist Party: The CPN-UML and the

CPN-MC in alliance secured majority in the three tiers of elections for institutionalising federalism. Postelection, the coalition formally agreed to form a unified party, the “Nepal

Communist Party (NCP)” on 17 May 2018. As per the agreement, the unified party will form a central committee with 441 members comprising of 241 members from the CPN-UML and 200 members from the CPN-MC. Likewise, it will have a 43 member standing committee, 25 from the CPN-UML and 18 from the CPN-MC. The new wave of consolidation hints prospect of political stability in the days to come. People are also anticipating steady and comprehensive development in the country.

Diplomatic visits Prime Minister of Pakistan visits Nepal:4,5,6 The Prime Minister of

Islamic Republic of Pakistan, Shahid Khaqan Abbasi, visited Nepal from 5-6 March 2018. His visit included formal meetings with President Bidhya Devi Bhandari, PM KP Oli and Pushpa Kamal Dahal, one of the two chairmen of the newly formed NCP. The particular focus of the visit was

on expediting the stalled South Asian Association for Regional Cooperation (SAARC) process. Abassi expressed Pakistan’s desire to host the 19th summit of the regional grouping and asked Nepal to create a favourable environment for the same. The 19th SAARC Summit scheduled to be held in Islamabad in November 2016 was postponed after India along with few members of the organisation refused to attend it.7 PM Oli’s visit to India: PM KP Oli visited India on an official trip of three days from 6-8 April 2018.8 During the visit, Oli met his counterpart PM Narendra Modi, where the two prime ministers signed MoU on: l New Partnership in Agriculture: This arrangement will focus on collaborative projects in agricultural research, and development, education, training and scholarships; strengthening of supply and value chain; climate resilience; research in seed technology; soil health; strengthening


NEFPORT ISSUE 33 – JUNE 2018

infrastructure of plant protection laboratories; research on indigenous genetic resources; animal husbandry; veterinary research and development facilities; agroforestry; bio pesticides, bio fertilisers; cooperative farming, and promoting exchanges between the Indian Council for Agricultural Research (ICAR) and the Nepal Agricultural Research Council (NARC).9 l Expanding Rail Linkages: The two leaders have agreed to develop an “electrified rail line”10 connecting Raxaul in India to Kathmandu in Nepal with India’s financial support. l New Connectivity through Inland Waterways:11 This arrangement is to facilitate the effective and efficient movement of cargo, within the framework of trade and transit arrangements, providing additional access to the sea for Nepal.

In addition, Oli and Modi jointly inaugurated the Integrated Check Post at Birgunj and the MotihariAmlekhgunj cross-border petroleum products pipeline at Motihari. The two sides also agreed to expedite all Indian-assisted projects that are pending, including Arun-3, Pancheshwar and Saptakosi-Sunkosi. PM Modi’s Visit to Nepal: Prime

Minister of India, Narendra Modi made an official trip to Nepal from 11-12 May 2018. During his visit, he visited two religious pilgrimages of Nepal, Janakpur and Muktinath. Moreover, Modi and Nepali Prime Minister KP Oli launched the Nepal-India Ramayana Circuit connecting Janakpur in Nepal with Ayodhya in India. In Janakpur, the two prime ministers also inaugurated a direct bus service between Janakpur and Ayodhya. The leaders also jointly laid the foundation stone of 900 MW ArunIII hydro-electric project in Nepal.

Bilateral power trade, air connectivity, disaster management and Nepal’s trade deficit with India were other issues that were discussed between the two leaders. Ministry of Finance releases White Paper: The Finance Minister in the

White Paper extrapolated the dismal picture of the country’s economy citing that fiscal indiscipline has severely afflicted the Nepali economy leaving the state coffer virtually empty. This shortage of funds at the central level has prompted the government to cut down on spending.

Government releases Annual Policies and Programmes:The government in its annual policies and programmes has set ambitious growth targets with particular focus on various infrastructure development projects. It aims to double the per capita income within the next five years and graduate the country to the status of middle income nation in the next decade. The highlights of the policies are as follows:

Economy

Tourism

Agriculture and Industry

Turn the import-based economy into an economy based on production, jobs creation, self-sufficiency, and exports

Complete the Bhairahawa-based Gautam Buddha Airport within a year and Pokhara Airport in three years to boost tourist arrivals

Focus on being self-sufficient in sugar, leather and shoe production, while cement is promoted as an export-based industry

Double-digit growth in GDP in FY 2018/19

Develop new tourist destinations

Double the agricultural output within five years using modern agricultural technologies

Double the per capita income in five years and make the country a middle income nation within a decade

Develop main cities as green cities

Fix the minimum support price of major crop, paddy, wheat and sugarcane when farmers begin the planting

Generate 5,000 megawatt electricity in five years and 15,000 MW in 10 years

Develop commercial skills and employment opportunities in the country and end the obligations for foreign employment

Infrastructure Complete the reconstruction of three major heritage sites—Dharahara, Kastamandap and Rani Pokhari in the next three years Complete the construction of Mechi-Mahakali Mid-hill Highway, Postal Highway, Pushpalal Highway and Kathmandu-Tarai Expressway within five years Construct Rasuwagadhi-Kathmandu-Pokhara-Lumbini, Raxaul-Kathmandu and Mechi-Mahakali railways within five years Construct Rasuwagadhi-Kathmandu-Pokhara-Lumbini, Raxaul-Kathmandu and Mechi-Mahakali railways within five years Set up a 15-bedded hospital in each local federal unit Construct a stadium in each province

9


10

DOCKING NEPAL’S ECONOMIC ANALYSIS

Bureaucratic Trimmings Size of Cabinet In a quest to limit the number of ministries, PM Oli formed a Cabinet of 17 ministers and 4 state ministers merging various ministries together. Earlier the cabinet size was a historic high of 62 ministers under Sher Bahadur Deuba’s tenure as prime minister. Besides, the prime minister has brought various constitutional bodies under the Office of the Prime Minister and Council of Ministers (OPMCM). The 11 constitutional bodies brought under OPMCM are: 1. National Investigation Bureau

2. National Development Council

3. Investment Board

4. Department of Revenue Investigation

5. Investigation Central Bureau of Statistics

6. National Vigilance Centre

7. Constitutional Council Secretariat

8.Attorney General’s Office

9. Poverty Alleviation Fund

10. National Planning Commission

11. Department of Money Laundering Investigation

Number of Secretaries The number of government secretaries peaked in the past with prime ministers fragmenting ministries to accommodate more leaders in the Cabinet. However, now the Cabinet has decided to reduce the number of secretaries from 72 to 22 in the central government; single secretary for 20 ministries and two secretaries for Ministry of Finance. It will be a gradual process of shifting the surplus secretaries to other government offices under the federal structure.

Number of Public Holidays The Oli government has reduced public holidays by 22 days with a total of 67 public holidays applicable to all the civil servants and 22 days to those representing specific religion or culture. This is a sharp decrease from the earlier count of 104 days of public holidays.

Suspension of Foreign Trips of Government Officials The Prime Minister’s office has suspended foreign trips of government employees on the instruction of Prime Minister citing concerns over increasing burden the trips cause to the national treasury. In the meantime, Ministry of Federal Affairs and General Administration has also sought details from local governments on details of foreign visits made by the government employees and elected representatives.

Halt on Voluntary Retirement Scheme of Government Officials The Ministry of Federal Affairs and General Administration have indefinitely halted the voluntary retirement scheme citing that the country needs more manpower as the country has entered a transitional phase to federalism.

References: 13,14,15,16,17,18


NEFPORT ISSUE 33 – JUNE 2018

Government Action against Transport Cartel A syndicate is a self-organising group that is formed for issues of common interest. Weak or no government presence in the sector and/or lack of clear collaboration and planning between the government authorities allows syndicate to prosper and put undue pressure on the regulator. Why public transport entrepreneur joined cartel in Nepal? 1. Committees provided sector stability in the ever-changing political dynamics of Nepal 2. Monopoly profit motive 3. Committees bring down the average costs of maintenance, administration repairs (license renewal, staffing) and time and cost required to handle insurance claim 4. Committees provide additional insurance against vandalising of vehicles

How did the transport cartel affect the Nepali economy? Tax evasion: Public transport operators evade income tax by registering only with the committees. Currently, transporters are paying only vehicle tax, infrastructure tax and route permit fee to the government.19 The ‘vehicle tax’ is very nominal compared to the private vehicles thus causing a dip in government revenue and increasing the cost of doing business in the sector. Anticompetitive behaviour: Transport entrepreneurs limited the number of route permit to retain monopoly in the market creating barrier of entry for new players and hindering improvement of the sector. Violence and Strikes: As a cartel, the associations in the past have pursued strikes and violence to bargain with the government for their interests like hiking transport costs, preventing the government to provide route permits, among others. Substandard services: Lack of market pressure and competition in the transport sector has led to the terrible condition of public buses. Cartel authorities tend to restrict the number of buses available to the public during peak hours to save fuel costs. This in turn adds considerable discomfort to the consumers.

What did the government do? •

The government has made it mandatory for transport bodies to register as companies at the Office of Company Registrar (OCR) by deciding not to renew the registration of existing transport bodies.

Department of Transport Management has introduced a rule under which income tax clearance certificate of the government is mandatory for any transport body to renew the registration of their organisation.

The decision enables people owning even one vehicle to operate public transport services.

A taskforce including the stakeholders to advise the Ministry of Physical Infrastructure and Transport has been formed that will table recommendations on vehicle routes, fare, bus park management, insurance, standard code of conduct for vehicle operators and their staff, compensation and e-ticketing.

Impact on economy: As the transport bodies function as commercial associations by registering themselves at the OCR, they will be liable to pay all necessary taxes, including income tax to the government. Bringing public transportation sector under the tax net will ensure the growth of government revenue. It is also expected to help the government to maintain clear database of the public transportation sector, including the number of employment that the sector is providing and its contribution to the national economy.

11


12

DOCKING NEPAL’S ECONOMIC ANALYSIS

Nepal Elected as the Chair and member of various international committees: Nepal has been elected

as the Chair of Committee on Conferences, a permanent subsidiary

“ OUTLOOK

organ of The United Nations General Assembly (UNGA) for the year 2018.20 Similarly, Nepal has been elected as a member of the Commission on Science and Technology for Development

(CSTD) and as a member of executive board of the United Nations Entity for Gender Equality and empowerment of Women (UN-Women) for the term 2019-2021.21

The formation of the NCP paves the way for a stable political regime for the next five years in Nepal. However, some fractionalisation from the party is expected in the long run due to the challenges that will arise in accommodating top party leaders from both the parties. The annual policies of the government look ambitious and challenging. Clear policies regarding investment will be required to assure confidence of domestic and foreign investors to fulfil the agendas set in the policies. The new projects signed between Nepal and India although looks lucrative, records of slow implementation of India-backed projects imply that the actual realisation of benefits from such projects will remain unaccountable in the short term. In the case of SAARC, some movement can be expected after the visit of Pakistan’s PM and his desire to expedite the stalled process. Stringent government action against syndicate in various sectors is expected in the coming quarter. New projects in state and local level are also expected to commence post-budget disbursement. Some disputes and conflicts are also expected to arise between the three tiers of government regarding budget allocation and disbursement.


NEFPORT ISSUE 33 – JUNE 2018

INTERNATIONAL ECONOMY INTERNATIONAL ECONOMY Last quarter was quite eventful for the International Economy. The US and China have jointly decided to stop slapping import tariffs against each other and have put the possible trade war on hold. The meeting between North and South Korean leaders that ended the 68-year-old Korean War was a surprising development, but the cancellation of North Korea - United States Summit raises concerns. Further, the US decision to slap Venezuela with more sanctions is not an unexpected event in the world economy given that the country has imposed more than 10 sanctions on different countries in 2018 alone. The oil market saw fluctuating trend in crude oil prices this quarter impacting Nepali economy mainly on its trade, inflation, and liquidity. The IMF World Economic Outlook projects global growth rate to rise up to 3.9% in 2018/19. Hence, the oil prices are anticipated to average NPR 6,905 (USD 65) per barrel in 2018 and 2019. The European Union started to regulate General Data Protection Regulation (GDPR) providing consumers greater control of their personal data. World Economic Outlook: The International Monetary Fund (IMF)

published the World Economic Outlook, April 2018 under the theme “Cyclical Upswing, Structural Change.”22 According to the report, the global growth has recovered from 3.2% in 2016 to 3.8% in 2017 as shown in Figure 1. The global growth is expected to rise to a 3.9% in both 2018 and 2019. Advanced economies will grow faster than their potential, whereas aggregate growth in emerging and developing economies will continue to rise

in 2018 and 2019, respectively. However, there are some signs of future risks: trade wars, geopolitical tensions, tighter financial conditions such as higher borrowing costs, less borrowing credit, and stock market decline, among others. The current recovery of the global economy offers a vast opportunity to advance policies and reforms that secure the current upsurge and strengthen medium-term growth to benefit all.

Figure 1: Global Growth Rate

Global Growth Rate 3.9

Percentage

3.8

3.9

3.2

2016 2017 2018 2019 YEAR Source: IMF World Economic Outlook, April 2018

13


14

DOCKING NEPAL’S ECONOMIC ANALYSIS

US-China Trade War halted: The

possible trade war between the US and China has been put on hold after China retaliated with its own list of targets imposing tariffs on key exports from the US—the whole possibility of a trade between the two superpowers began when the US imposed tariffs on steel and aluminium targeting China. The deal to halt the trade war was reached once the US was successful in persuading China to buy NPR 21248 billion (USD 200 billion) of US goods and services in order to reduce the trade imbalance.23 China has to reduce the trade deficit but has notgiven any concrete amount. There was also conflict between the countries regarding the issue of intellectual property rights with Trump accusing China of stealing US business secrets and technology.24 According to the Chinese Vice Premier Liu He, “the two sides will enhance their trade cooperation in areas such as energy, agriculture products, healthcare, high-tech products and finance.”25 The US trade deficit with China in the past years has been depicted below in Figure 2:

North Korea-South Korea Summit:

North Korean leader Kim Jong Un and South Korea’s President Moon Jae-in met at the line that separates two countries. The two leaders vowed to formally end the 68-year-old Korean War signing the Panmunjom Declaration for Peace, Prosperity and Unification on the Korean Peninsula. The two leaders “confirmed the common goal of realising, through complete denuclearisation, a nuclear-free Korean Peninsula.”26 Moreover, China seems to be a key factor influencing this grand consensus. Historic 2018 North Korea-United States summit cancelled: The US

President Donald Trump cancelled the historic North Korea – United States summit scheduled to be held on 12 June 2018 in Singapore. Despite North Korea showing a gesture of goodwill demolishing its underground nuclear testing site, the US cancelled the Summit. Trump claimed that the anticipated meeting was totally irrelevant to the United States. This decision might spark new

controversies between the US and China given that the latter helped to bring the two countries together. Both countries look forward to meeting in the near future to resolve the problems.27 US

sanctions

on

Venezuela:

Venezuela woke up to new US sanctions a day after Nicolas Maduro was re-elected as the President. The executive order signed by the President mandates that US citizens or companies are banned from buying debt or account receivable from the Venezuelan government including government-owned oil company. The first financial sanction on Venezuela was imposed after Maduro, and his government started selling off debt held by the government entities, including account receivables, for less than what it was worth. Trump administration had viewed this strategy as pocketing the cash and leaving Venezuela’s finances in shambles.28 Privacy threat: The voice-activated

Amazon Echo speaker recorded a

Figure 2: US trade deficit with China (in USD billion)

US trade deficit with China (in USD billion)

273

295

315

318

344

367

347

375

2010 2011 2012 2013 2014 2015 2016 2017

NOTE: All figures are in billions of U.S. dollars on a nominal basis, not seasonally adjusted unless otherwise specified.

Source: United States Census Bureau


NEFPORT ISSUE 33 – JUNE 2018

private conversation of a couple and shared them without their consent. Amazon explained the series of events that triggered the episode in an emailed statement.29 This incident highlights the threats posed by the Internet of Things. The home assistants like Amazon Echo, Google Home and Apple HomePod have been a big hit in recent years but they also clearly raise privacy concerns. EU regulates General Data Protection Regulation (GDPR): The

European Union (EU) regulated General Data Protection Regulation (GDPR) came into force on 25 May 2018. Its main aim is to give consumers control of their personal data collected by tech companies. As per the regulation, companies are not allowed to use vague or confusing terms and agreements, meaning consent must be easy to retract.

Companies have to face fines up to four percent of total global turnover if they breach the rules. It covers organisations not only located within the EU, but also to companies outside of the EU who wish to offer goods and services to, or monitor the behaviour of Europeans living in the Union.30 Oil prices soaring high: As per the World Bank’s Pink Sheet, the average crude price stood at NPR 7,033 (USD 66.2) in January then declined to NPR 6,746 (USD 63.5) in February but then again rose to NPR 7,309 (USD 68.8) in April as shown in Figure 3. Increase in the price of crude oil in the international market affects the Nepali economy as well. In Figure 3 below, the price has increased from NPR 98 (USD 0.922) to NPR 106 (USD 0.99) during the period of November 2017 to April 2018.

The increase in oil price is mainly because of strong demand from developing countries and the reduction of oil production and supply by Organisation of Petroleum Exporting Countries (OPEC), and Non-OPEC nations like Russia and Saudis. The oil market trembled due to the perpetuating conflict in the Middle East (mainly in Gaza, Yemen and Egypt) and the US decision to withdraw from the Iran nuclear deal. These geopolitical tensions and a big decline in crude production of Venezuela possess the greater risk of inflating oil prices. After the 2014 oil collapse, the exporters’ growth prospects deteriorated because they had to face many policy challenges. Therefore, oil prices are anticipated to average NPR 6,905 (USD 65) per barrel in 2018 and 2019.

Figure 3: Monthly average prices of crude oil and Nepal’s petroleum prices

Monthly average prices of crude oil (in USD) and Nepal’s Petroleum Price (in NPR)

98

101

59.9

61.2

103

66.2

104

103

63.5

64.2

106

68.8

NOV-17 DEC-17 JAN-18 FEB-18 MAR-18 APR-18 Nepal’s Petroleum Price (in NPR) Crude Oil Monthly Average Price (in USD) Source: World Bank Commodity Prices (Pink Sheet) and Nepal Oil Corporation Limited

15


16

DOCKING NEPAL’S ECONOMIC ANALYSIS

“ OUTLOOK

The global economy continues to grow but to achieve the projected growth rate, the possible threats such as trade wars, tighter financial conditions, and geopolitical tensions should be tackled carefully. US-China trade war might resume after the collapse of North Korea – United States summit, which might affect the world economy adversely. The successful completion of North Korea – South Korea summit is a huge diplomatic success to foster harmony and peace on the Korean Peninsula. The Venezuelan financial system might get even worse after a new round of US sanctions. Other countries should follow suit and enforce regulation like GDPR to provide greater control of personal consumer data. The OPEC may decide to raise the oil output due to uncertainties on Iranian and Venezuelan oil supply. Oil exporters have been facing policy challenges lately. Therefore, oil exporting economies need to increase diversification and reinforce monetary and fiscal frameworks for tackling policy challenges.


2 MACROECONOMIC

OVERVIEW


DOCKING NEPAL’S ECONOMIC ANALYSIS

MACROECONOMIC OVERVIEW MACROECONOMIC OVERVIEW The year-on-year (YoY) inflation level inflated to 5.3% over the past nine months of FY 2017/18, nevertheless the inflation is within the targeted level of 7%. On the other hand, Nepal’s trade deficit continues to widen as merchandise import increased to NPR 816.55 billion (USD 7.58 billion). Inflation: The inflation rate, measured

by Consumer Price Index (CPI), has increased to 5.3% in mid-January (see Figure 4). It stood at 3.8% over the same period the previous year. Food inflation surged to 4.7%, which was caused by the increase in prices of pulses and legumes, spices, vegetables and fruits. Non-food inflation, however, moderated to 5.8% on the back of declining prices of clothes and

footwear, furnishing and household equipment and housing and utilities. The drop in inflation rates can be mainly attributed to an improved supply situation and a deceleration in the Indian inflation rate. Inflation wedge between Nepal and India: The inflation wedge, measured

as the YoY change in CPI of Nepal and India has fallen to 0.7%, as

shown in Figure 5. Over the same period last year, the inflation wedge between India and Nepal stood at 0.8% as shown in Figure 6. An improved supply situation between the two countries and a deceleration in the Indian inflation rate can be cited as the main reasons for the subtle inflation wedge. The average inflation wedge for FY 2016/17 had stood at -0.5%.

Figure 4: Year on year inflation measured by Consumer Price Index (CPI) for nine months of FY 2016-17 & 2017-18

Inflation measured by CPI (In %)

18

8.6

7.9 6.7 6 5 3.8

3.4

3.8

2.6 3.1 2.3

mid-Aug

3.2

3.2

3.3

mid-Dec

mid-Jan

mid-Feb

2.3

mid-Sep

mid-oct

mid-Nov

Review Period

5.3

4

2.9

mid-Mar

mid-Apr

2016-17 2017-2018

Source: Current Macroeconomic Situation of Nepal (Based on the nine-month data of 2017/18), Nepal Rastra Bank


NEFPORT ISSUE 33 – JUNE 2018

Change in Consumer Price Index (in %)

Figure 5: Year-on-year percentage change in CPI in Nepal and India and the inflation wedge in the corresponding period for FY 2017-18

6 5.2

4.9

3.4

3.4 3.3

mid-Aug

mid-Sep

3.6

4.2

3.9

5.07

5.3

5 4.4

4.3

mid-Feb

mid-Mar

4

4.6

3.1

2.3

mid-oct

mid-Nov

mid-Dec

mid-Jan

mid-Apr

Review Period Nepal

India

Inflation wedge

Source: Current Macroeconomic Situation of Nepal (Based on the nine-month data of 2017/18), Nepal Rastra Bank

Figure 6: Year-on-year change in inflation wedge (based on CPI) between Nepal and India in FY 2016-17 & 2017-18 2016-17 2017-2018

3.6 3.5

Inflation Wedge

2.5

1.7

1.2 0.4

0.1 mid-Aug

mid-Sep

0.0 mid-oct

mid-Nov

(0.5)

-1

mid-Dec

0.8

0.6

mid-Jan

0.7 0.0 mid-Feb

mid-Mar

mid-Apr

0.4

-1 -1.17

Review Period Source: Current Macroeconomic Situation of Nepal (Based on the nine-month data of 2017/18), Nepal Rastra Bank

19


DOCKING NEPAL’S ECONOMIC ANALYSIS

Import-export and trade deficit:

Merchandise imports have increased by 20.6% to NPR 876.29 billion (USD 8.24 billion) in the first nine months of FY 2017/18, as shown in Figure 7 compared to 39.7% in the same period of the previous year. In comparison to the same period last year, Nepal’s import from India increased by 21.9%, showing a greater dependency on its neighbour. Merchandise exports have grown at a sluggish pace in comparison to a drastic increment in merchandise imports.

Merchandise exports increased by only 8.2% to NPR 59.74 billion (USD 562 million)in the first nine months of FY 2017/18. The corresponding figure was 12.1% in the same period of previous year. A lack of growth in the industrial sector can be attributed to the lack of any substantial growth in exports. Similarly, nine months average wholesale price indices (WPI) moderated to 2.2% in FY 2017/18. The corresponding figure was 1.2% in the previous year. As a result of the widening gap between imports and exports,

Nepal’s trade deficit increased by 21.7%, compared to 42.6% in the same period the previous year, as shown in Figure 8. Nepal’s trade deficit now stands at NPR 816.55 billion (USD 7.68 billion). Nepal’s propensity to import goods from India and the lack of growth in domestic producers can be attributed to the widening trade gap. With the government unable to boost exports and support the development of the domestic industrial sector, the trade deficit will continue to worsen with imports growing at a substantial rate.

Figure 7: Year-on-year percentage change in merchandise imports in review periods in FYs 2016-17 and 2017-18

2016-17 2017-2018

87.4 78.9

Change in merchandize import (in %)

20

69.1 60.8 67.3

44.2

43.4

39.7

13

16.9

9.3 mid-Aug

15

11 10.8 mid-Sep

mid-oct

mid-Nov

18.9

22.2 20.6

12.8 mid-Dec

mid-Jan

mid-Feb

mid-Mar

mid-Apr

Review Period

Source: Current Macroeconomic Situation of Nepal (Based on the nine-month data of 2017/18), Nepal Rastra Bank


NEFPORT ISSUE 33 – JUNE 2018

Change in merchandize export (in %)

Figure 8: Year-on-year percentage change in merchandise exports in review periods in FYs 2016-17 and 2017-18 17

17.1 14.8

15.2 12.8

12.6 10 7.7

7.9

7.5

mid-Sep

mid-oct

mid-Nov

7.7

mid-Aug

-3.9

13.4

12.1

12.9 10.8

mid-Dec

mid-Jan

mid-Feb

mid-Mar

8.2

mid-Apr

-3.3

Review Period

2016-17 2017-2018

Source: Current Macroeconomic Situation of Nepal (Based on the nine-month data of 2017/18), Nepal Rastra Bank

Figure 9: Year-on-year percentage change in trade deficit in review periods in FYs 2016-17 and 2017-18

Change in trade deficit (in %)

97.9

97

77.5

74

66.2

48.1

17.7

10.7 10.7 mid-Aug

47.6

11.1

13

15.1

mid-Nov

mid-Dec

mid-Jan

19.4

42.6

23

21.7

mid-Mar

mid-Apr

11.8 mid-Sep

mid-oct

Review Period

mid-Feb

2016-17 2017-2018

Source: Current Macroeconomic Situation of Nepal (Based on the nine-month data of 2017/18), Nepal Rastra Bank

21


DOCKING NEPAL’S ECONOMIC ANALYSIS

by 27.3% to NPR 643.64 billion (USD 6.05 billion), compared to an increase of 12% in the corresponding period of the previous year, as shown in Figure 11. This was on account of both recurrent and capital expenditure rising to NPR 491.30 billion (USD 4.62 billion) and NPR 108.96 billion (USD 1.02 billion) respectively. Recurrent and capital expenditure stood at NPR 305.77 billion (USD

Government revenue: Government

revenue collection increased by 20.8%, amounting to NPR 505.90 billion (USD 4.76 billion). The revenue collection had increased by 44.4% to NPR 418.95 billion (USD 3.94 billion) in the corresponding period of the previous year as shown in Figure 9.

Government expenditure: Total government expenditure increased

2.87 million) and NPR 74.09 billion (USD 697 million) respectively in the corresponding period of the previous year. The utilisation of capital and recurrent budget has been approximately 61.1% and 32.5% respectively. Figure 12 shows the monthly outlay in terms of percentage of the target achieved for government spending.31

Figure 10: Year-on-year percentage change in revenue collection during the review periods for FY 2016-17 and 2017-18 Change in revenue collection (in %)

22

84

81.5

65 51.6

68.9

66.7

51.9 44.4

36 11.5

10.3

mid-Aug

mid-Sep

16.3

17

mid-Nov

mid-Dec

20.7

19.5

21.4

mid-Feb

mid-Mar

20.8

10.7

mid-oct

Review Period

mid-Jan

mid-Apr

2016-17 2017-2018

Source: Current Macroeconomic Situation of Nepal (Based on the nine-month data of 2017/18), Nepal Rastra Bank


NEFPORT ISSUE 33 – JUNE 2018

Figure 11: Year-on-year change in government expenditure during the review period for FY 2016-17 and 2017-18

Change in government spending

18.57

72.38

138.84

170.7

256.3

140.68

95.16

364.95

428.88

506.55

248.2

313.3

374.96

mid-Jan

mid-Feb

194.61

643.64

419.93

31.55

2.31

mid-Aug

mid-Sep

mid-oct

mid-Nov

mid-Dec

Review Period

mid-Mar

mid-Apr

2016-17 2017-2018

Source: Current Macroeconomic Situation of Nepal (Based on the six-month data of 2017/18), Nepal Rastra Bank

Budgetary Outlay (in% of target)

Figure 12: Budgetary outlay trend over the twelve months of FY 2017-18 30 25 20 15 10 5 0 mid-Aug

mid-Sep

mid-oct

mid-Nov

mid-Dec

mid-Jan

mid-Feb

mid-Mar

mid-Apr

Review Period Recurrent (17/18)

Capital (17/18)

Financing (17/18)

Source: Current Macroeconomic Situation of Nepal (Based on the nine-month data of 2017/18), Nepal Rastra Bank

23


24

DOCKING NEPAL’S ECONOMIC ANALYSIS

“ OUTLOOK Inflation levels are expected to remain relatively low in the country; however changes in global oil prices still pose a threat. Nepal’s trade deficit will continue to widen, increasing the need to strengthen domestic industries in order to make Nepali exports more competitive in the global market. Since the current account deficit is a product of consumption binge, the government should use deficit financing for investment purposes. But repaying the debts will be challenging in the future, if the borrowed foreign funds are not utilised in investments with a higher return than the interest rate. Budget of NPR 1,315 billion (USD 12 billion) was announced for the coming fiscal year 2018/19. Compared to the previous fiscal year, size of the budget has increased by approximately 3%. The budget aims to achieve the economic growth of 8% and tame the inflation within 6.5%. The structure of the budget is as follows: Tax revenue: NPR 724 billion (USD 6.81 billion) Reveune receipt: NPR 890 billion (USD 8.36 billion)

Non tax revenue: NPR 107 billion (USD 1 billion) Foreign grant: NPR 58 billion (USD 546 million )

Government receipt: NPR 1,315 billion (USD 12 billion)

Foreign loan: NPR 253 billion (USD 2.38 billion)

capital receipt : NPR 425 billion (USD 4 billion)

Structure of Government Budget

Recurent expenditure: NPR 845 billion (USD 7.95 billion)

Government expenditure: NPR 1,315 billion (USD 12 billion)

Capital and Financing expenditure: NPR 470 billion (USD 4.42 billion)

Recreation culture and region 0%

Health

Environment protection

Source: Ministry of Finance, Budget FY 2075/76

Social protection

Education

Housing and community amenities

Domestic borrowing: NPR 172 billion (USD 1.62 billion)

10%

4%

5% General public service

5% 2%

Sector wise budget allocation:

30% Defence

3% 37% Economic affairs

4% Public order and safety Source: Ministry of Finance, Budget 2075/76


3 NEFPORT ISSUE 33 – JUNE 2018

SECTORAL

REVIEW

25


DOCKING NEPAL’S ECONOMIC ANALYSIS

AGRICULTURE AGRICULTURE AGRICULTURE

Due to drop in paddy yield, the growth of the agriculture sector in 2017/18 stood at 2.8% against the estimated growth rate of 5.3%.32 Despite various positive developments and efforts undertaken by the government to modernise the agricultural sector, the country has not been able to be self-reliant, resulting in imports of farm products of approximately NPR 200 billion (USD 1.88 billion) in FY 2017/18.

According to the Summer Crop Production Report of FY 2017/18 prepared by the Ministry of Agriculture Development (MoAD), the paddy production has dropped by 1.50%, i.e. 5.15 million tons, in FY 2017/18 on account of late monsoon and heavy floods in Tarai.33 In FY 2016/17, an above-normal monsoon in the country recorded biggest paddy harvest in the history of 5.23 million tons. As such, the contribution of paddy helped agriculture sector to register an incremental growth of 5.32% thereby stimulating the overall economic growth to 6.9%. As per the South Asian Climate Outlook Forum, Nepal is likely to receive an average rainfall this monsoon which is expected to boost agriculture output in FY 2018/19.34 Nepal likely to enjoy food grain surplus of 1 million tons: According

to the Ministry of Agricultural Development (MoAD), despite fall in paddy output, the total production of cereal crops (paddy,

Figure 13: Paddy production volumes and percentage change in production over five consecutive fiscal years

6

25% 20%

5

15%

4

10%

3

5% 0%

2

-5%

1

-10%

0

-15% 2013-14 2014-15 2015-16 2016-17 2017-18 Production Growth

Percentage change in production

Paddy Production down by 1.5%:

Production (in million tons)

26

Source: Ministry of Agriculture Development

maize, wheat, millet, buckwheat and barley) is projected to grow at 2.43% amounting to 10 million tons this fiscal year. In addition, statistics also reveal that cereal crops were grown on 3.42 million hectares this year, down by 2.53%. Refer Figure 14 and Figure 15. Despite the decline in crop acreage, total production swelled due to higher productivity. Still Nepal faces food

deficit. According to Economic Survey 2017-18, the country has a food deficit of 71,400 tons in FY 2017/18, which in FY 016/17 was surplus by 898,115 tons. In the past past decades, the country saw the highest food deficit of 485,000 tons in 1994-95 and the highest food surplus was observed in 201112 when the country produced a bumper harvest. Refer Figure 16.


NEFPORT ISSUE 33 – JUNE 2018

Figure 14: A comparison of cereal output over three consecutive fiscal years (in tons) 10.5 10 9.77

Output in Tons

10 9.5 9

8.61

8.5 8 7.5 2015-16 2016-17 2017-18

Figure 15: A Comparison of Paddy, Maize, Wheat and Millet output over three consecutive fiscal years (in tons)

6 5.23

5.15

5

Output in Tons

4.29 4

3

2.28 2.33

2.55 1.94 1.73 1.85

2

1

0.3 0.31 0.31

0 Paddy

Maize

Wheat

Millet

2015-16 2016-17 2017-18

Source: The Kathmandu Post

27


28

DOCKING NEPAL’S ECONOMIC ANALYSIS

Figure 16: Figure showing food surplus and deficit in last ten years (in tons) 943,161

898,115 789,890

408,442

334,468

155,558

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

(71,399)

(92,686)

2016-17

2017-18

(71,400)

(382,142) Source: The Kathmandu Post

Storm affects banana farming in Chitwan and Bara: A massive

windstorm in the southern part of the country has devastated banana plantation worth millions of rupees in Chitwan and Bara districts. According to Bishnu Hari Panta, chairman of Banana Farmers Association, the storm damaged 150,000 banana plants in Chitwan District and caused loss of more than NPR 340 million (USD 3.2 million).35 Banana farming in Chitwan alone is done in 2,200 bighas of the total land fetching NPR 600 million (USD 5.64 million) annually. Similarly, the storm has also affected banana farming in Bara district, which occupies 450 bighas of land.36

AIC ensures an adequate supply of fertiliser: The Agriculture Inputs

Company (AIC), a state-owned enterprise that provides subsidised fertilisers, has ensured sufficient amount of chemical fertilisers during the paddy planting season despite expected drop in imports due to rising prices in the international market. The AIC has enough stock of both urea and Diammonium

Phosphate (DAP) sufficient for at least three months from early June till mid-September. This at least in the case of DAP may not be enough in case of a good monsoon. According to the Agriculture Ministry, the annual demand for chemical fertiliser currently stands at 723,000 tons, of which subsidised fertilisers cover only one-fourth of the country’s total requirement. The rest is met by informal imports, or shipments smuggled from India.37 Bird flu causes loss of more than NPR 7 million: The outbreak

of H5N1 avian influenza in the Chitwan District that caused death of 2,500 hens and destroyed fowls and poultry products worth NPR 7.06 million (USD 66,528) has been successfully curbed. According to the District Livestock Development Office (DADO), in the contaminated areas, i.e. Khairahani Municipality-9 and surrounding regions in Chitwan, 11,950 layers hen, 23 local breeds, 144 ducks, 4 broilers, 607 kg poultry feed and 12,726 eggs were disposed of. To cover the losses, the DADO is expected to compensate

poultry entrepreneurs an amount of NPR 500 (USD 4.70) for breeding fowls and NPR 350 (USD 3.29) for hens. The Bird Flu Control Directives of 2064 BS has the provision of ensuring 75% of the destroyed assets in compensation to the poultry entrepreneurs.38 New agro roadmap envisions agro transformation: The Ministry of

Agriculture, Land Management and Cooperatives issued a 58-point transformation roadmap 2075 to transform agriculture, livestock, land management and cooperatives sectors. It envisions generating more jobs, making the country self-sufficient in food production and boosting agro exports. The bill for agricultural imports is nearing NPR 200 billion (USD 1.88 billion), which is higher than what the country spends on oil imports. As a result, the government aims to modernise and mechanise agriculture to reduce dependence on food imports. The key highlights of the roadmap are as follows:39 l Nepal Agricultural Research Council (NARC) to be given a status of Deemed University in


NEFPORT ISSUE 33 – JUNE 2018

order to promote research l Doubling the number of improved breeds of cow and buffalo within five years l Establishing warehouses to stock 25,000 tons of fertiliser in all provinces to ensure timely availability of chemical fertilisers l Formulate a master plan to make Karnali an organic province and Province 2 to be promoted as special food producing area l Fixing minimum support price of key crops l Making country self-reliant in green vegetables within three years l Building warehouses to store 100,000 tons of food in all provinces l Soil health cards to be distributed at all local levels l Increase meat production to substitute imports by 75% within five years l 70% subsidy on agro commercial project plans launched by youths l Farmers’ identity cards to be distributed in next two years l Launch pension scheme for poor farmers

l

Implement Land Use Policy and Land Use Act within six months l 40% discount on land registration fee if the land belongs to women l Make an effort to run Birgunj and Lumbini Sugar Mills under cooperative model

Budget

The key highlights of budget 2018/19 are as follows: l

The agriculture sector together with Land Management & Cooperative is allocated NPR 40.14 billion (USD 0.38 billion). l Prime Minister Agriculture Modernisation Project will be expanded. Grant will be provided on improved seeds and plants of tea, coffee, cardamom, areca nuts, potato, banana and lemon. For this project, NPR 4.77 billion (USD 40 million) has been allocated. l Policy to increase the export of high-value agricultural product will be adopted. Production, diversification and value chain will be expanded as multi-use of agricultural products. And organic production of farm product will be prioritised.

l

‘Agriculture Knowledge Centre’ will be established at all local levels to provide technical knowledge and skills about agriculture and livestock. The government will attract the youths returned from foreign employment to the organic farming and agriculture business. l Fruit nursery will be established and plants distribution and technology transfer programme will be conducted by assessing fruit pocket areas in Chure Bhawar and other regions with low grain productivity. At least one integrated community or cooperative model agriculture farm will be established in each province. l A subsidy of 25% will be provided for the acquisition of necessary equipment for milk, meat, fruit, and vegetable processing industries operating through cooperatives and for the establishment of feed industries for fish and livestock based on non-food industries at local level. l Agriculture insurance will be expanded to address production risk.

“ OUTLOOK On account of good monsoon, the agriculture output is expected to register a nine-year high growth rate of 5.32% in the FY 2018/19. As no new programmes and projects have been announced in this fiscal budget, same programmes from the previous budget will continue with additional priority to farm modernisation, commercialisation and mechanisation to attain self-sufficiency in agro-produce. The government should put more concentrated efforts on the delivery of programmes ideated by its agencies. .

29


30

DOCKING NEPAL’S ECONOMIC ANALYSIS

ENERGY ENERGY AGRICULTURE

The state-owned power utility, Nepal Electricity Authority (NEA), is aiming to increase the domestic demand for electricity as it is confident that Nepal will have energy surplus within a few years. The country will have surplus energy at least during the wet season once the 456 MW Upper Tamakoshi Hydropower Project, which is expected to come online by April 2019, starts commissioning. However, consumption of electricity by the industrial sector only accounts for 8% of the total electricity supply whereas energy consumption of private households accounts for 80%. Thus, the electricity consumption by industrial sector needs to increase for the domestic demand to increase. Given that generating hydropower plays a crucial role in meeting development targets, the government needs to create an enabling environment for private sector investments in the sector. Facilitating the private sector with reduction of bureaucratic hurdles and amendments of policies will act as positive catalysts in making Nepal a power bank of South Asia. Nepal Electricity Regulatory Commission’s (NERC) formation delayed: The Ministry of Energy,

Water Resources and Irrigation (MoEWRI)’s plan to establish NERC has been derailed with the Ministry of Law (MoL) not giving consent to the draft of NERC’s regulation proposed by the MoEWRI. Only after it gets the consent from the MoL, it can take it to the Cabinet for approval and then start the process to establish the Commission. Parliament endorsed Electricity Regulatory Commission Act 2017 paved the path for NERC’s establishment. The NERC will replace the existing Electricity Tariff Fixation Commission and will decide on the charges that customers will have to pay to the NEA after holding a public hearing. In addition, the commission will specify certain standards for the construction of hydropower plants, transmission

lines and distribution networks and also determine the voltage to be supplied to the customers by the utility. Moreover, NERC will decide the power purchase rate for the NEA.40 largest solar plant: A foundation stone for the construction of 25 MW solar plant at Devighat Hydropower station in Nuwakot has been laid by the honourable Minister for Energy, Water Resources and Irrigation. The project is targeted to be completed within a year and upon completion the plant will be the largest solar power plant in Nepal at a single location. The produced power will be fed into the national grid and supplied to Kathmandu Valley during the daytime which will balance the power distribution during peak hours. Also, some of the hydro projects need not operate during daytime once the plant starts to function. The government has set a

Nepal’s

target to build solar plants with a total installed capacity of 500 MW within the next five years. Out of a total of NPR 13.8 billion (USD 130 million) agreed to be provided by the World Bank to the government for building solar stations, NPR 3.9 billion (USD 37 million) has been allocated for the installation of solar plants at Devighat and Trishuli in Nuwakot district. The construction was to begin within a year of signing the aid agreement between the World Bank and the Government of Nepal but the NEA took two years to award the contract due to some controversies in the tender process.41 NEA plans to install battery storage system: The NEA is preparing to

install a battery storage system to store electricity generated by various power plants during off-peak hours, night times particularly, and supply it when production falls below demand.


NEFPORT ISSUE 33 – JUNE 2018

Preparation of bid documents to call for global tenders for such batteries is in the process. The Asian Development Bank is providing technical support for the same. The NEA is likely to set up the storage system before the next dry season. At an initial stage, the NEA will install storage system with a capacity to store up to 100 MW of electricity at two locations and go for a trial run.42 NEA eliminates power cuts in the industrial sector: The NEA had

initially planned to eliminate the power cuts in the industrial sector by the end of May as domestic hydropower generation would have surged by then due to rise in the water level. But the MoEWRI urged the NEA to bring forward the plan by a couple of weeks and the NEA performed quite well in this regard. The power generation from the run-ofthe-river hydro power plants increased because of the rise in the water levels of rivers. Also, Kulekhani hydropower project reservoir was utilised in providing electricity to the industrial sector. This development has helped in mitigating the routine power cuts faced by the industrial sector and the NEA was successful in implementing the power cut elimination plan within the stipulated time. The total demand for electricity during the peak hours stands at 1,300 MW whereas the total electricity supply amounts to 1,000 MW. The electricity demand from the industrial sector is around 300 MW and the industrialists had been demanding uninterrupted supply of electricity for their factories to operate in full capacity. The NEA has been successful in supplying uninterrupted electricity to the industrial sector. Currently, the domestic generation of electricity is 500 MW and is most likely to rise in the near future.43

1,200 MW Budhigandaki hydro project tender by next fiscal year:

The MoEWRI has issued a 125-point White Paper and unveiled that the tender for the Budhigandaki hydropower project will be issued next year. The Budhigandaki Project was handed over to the Chinese Gezhouba Group Company (CGGC) in November 2017 but due to some controversy, the then government had scrapped the contract. Through the White Paper, MoEWRI has announced of its plans to formulate an Integrated National Water Resources law for development, protection, management, regulation and integrated coordination of water resources. Likewise, the Ministry plans to study river basin projects and is likely to come up with a master plan within the next three years. The projected cost of the project is NPR 265.6 billion (USD 2.5 billion). According to the Paper, a modality for benefit-sharing with lower riparian is also to be formulated by the Ministry and the Electricity Act as well as Nepal Electricity Authority Act will be amended. Also, the government will formulate the Renewable Energy Development Act as well as Electricity Regulation Commission. In addition, the government will be working to increase the demand of electricity and per capita energy consumption to 700 units (kilowatt hours) within the next five years and to 1,500 units within the next decade. Similarly, the government plans to closely watch hydropower projects that are under construction and will take necessary actions for their timely completion as well as upgrade the existing ones, install new transmission lines and reduce electricity leakages.44 of Arun III: The foundation stone for the 900 MW Arun III hydropower project in Sankhuwasabha district in eastern

Foundation

Nepal was jointly laid by the prime minister of Nepal and India on 11 May 2018. The locals involved are hopeful that the project will generate employment opportunities for a large number of people in that region and reduce out-migration. The locals have urged the Indian joint venture SJVN Arun III Power Development Company for timely completion of the project which is set for 2022. The developer of the project is hiring contractors to build the powerhouse and transmission lines and to carry out the electro and hydro-mechanical works. The Investment Board Nepal (IBN) and the SJVN signed the Project Development Agreement back in November 2014, and the project was to start commissioning by 2020. But the plan got affected due to delays in acquiring forest land. The IBN estimates the return of NPR 348 billion (USD 3.28 billion) over 25 years from the project. In addition, the project developer will be providing 21.9% of the total energy generated free of cost worth NPR 155 billion (USD 1.46 billion) and royalties of NPR 107 billion (USD 1.01 billion) to the Government of Nepal.45 Chinese proposal for a joint power line DPR: China is looking forward

to collaborating with Nepal in preparing a DPR for an estimated 800-km cross-border transmission line from Galchi, Nepal to Shigatse, China. Only around 80 km out of the 800 km length lies within the territory of Nepal so it was logical for China to take the lead in preparing the DPR and developing the project. But the State Grid Corporation of China (SGCC) has proposed the NEA to work together in preparing the DPR. The SGCC will soon be sending the written proposal through the Ministry of Foreign Affairs. The NEA will be taking care of the technical aspects

31


32

DOCKING NEPAL’S ECONOMIC ANALYSIS

of the project and the MoEWRI will look into the construction modality. The NEA has already finalised the alignment of the power line. The initial plan was to build a 400 KV power line to link Rasuwagadhi and Kerung. Managing Director of the NEA asked China to extend the power line further south up to Galchhi to connect it with NepalIndia cross border transmission line which is to be built in Rupandehi district. China is very eager to develop this project since this transmission line will be crucial to the railway service the northern neighbour is keen on building.46

Tender deadline for feasibility study extended: The deadline to submit

proposal for a feasibility study and detailed design of the Tamor Storage Hydro Project has been extended by two weeks. As of 11 May 2018, there were only four firms that submitted the proposals. According to the NEA, the deadline was extended considering the requests from several potential applicants. Since the Department of Electricity Development (DoED) will be taking some time to issue the survey license for the project with an increased installed capacity of 762 MW, the NEA is not in a hurry to conduct the study. The initial design of the project had

the installed capacity of 200 MW but the NEA is planning to increase the installed capacity to 762 MW provided that technology and finance are in place. The installed capacity will get finalised once the feasibility study concludes. Japan International Cooperation Agency (JICA) had initially proposed to develop a 696 MW hydropower project on the Tamor River in 1985, but the Government of Nepal was not much interested in the proposal then. The NEA is now eager to develop the project with the increased installed capacity, and once the plan comes into action it will contribute significantly to the country’s energy production.47

“ OUTLOOK Universal access to affordable, reliable and modern energy services, increasing the share of renewable energy and doubling the global rate of improvement in energy efficiency are included in the Sustainable Development Goal (SDG7). In the context of Nepal, the baseline report prepared by the National Planning Commission (NPC) has proposed specific targets for SDG7 such as accessibility of 99% households to electricity and increasing per capita electricity consumption to 1,500 kilowatt hours (kWh). Fundamental policy shifts, unprecedented national efforts, and larger international cooperation is required to achieve these goals. In addition, energy security needs has to be prioritised, and possible threats should be analysed. Likewise, a proportionate power generation mix is necessary to ensure sustainable supply of energy. So initiatives must be taken to attract private funds in the sector. Also, development of cross-border power lines sgould be expedited given the country’s potential capacity of hydropower generation. To achieve the national target of sustainable energy for all, mobilising financial resources and meeting the fiscal gap, upscaling policy interventions, capacity development, and strengthening governance and delivery framework is required. The annual budget for the FY 2018/19 has allocated NPR 56.27 billion (USD 529.6 million), i.e., 4.28% of the total budget, for the MoEWRI. The first federal budget which is 2.82% bigger than the current fiscal plan aims to achieve 8% economic growth rate in the coming year and has prioritised energy and infrastructure sector.


NEFPORT ISSUE 33 – JUNE 2018

INFRASTRUCTURE AGRICULTURE INFRASTRUCTURE

To develop its infrastructure adequately, Nepal needs to invest between 8% to 12% of GDP until 2020, which is over USD 1 billion (NPR 106.24 billion).48 Infrastructure deficit in Nepal is a key constraint for unleashing the economic potential of the country. The sector is direly in need of huge investment to reduce the infra deficit. A gamut of initiatives to mobilise domestic and international resources is required to fill the infrastructure gap financing. Nepal’s construction expenditure compounded annual growth rate for the last five years is approximately 1%. Table 1 below shows the comparison of total GDP Table 1: Comparison of construction expenditure of total GDP

8% 6% 4% 2% 0% 2012/13 2013/14 2014/15 2015/16 2016/17

India’s % of construction expenditure of total GDP Share in total GDP

Share in total GDP

Nepal’s % of construction expenditure of total GDP

10% 8% 6% 4% 2% 0% 2012/13 2013/14 2014/15 2015/16 2016/17

Source: Ministry of Finance

India-Nepal Oil Pipeline: The 69 Km

India-Nepal oil pipeline project was jointly launched by Nepal’s Prime Minister KP Sharma Oli and Indian Prime Minister Narendra Modi. The process of lying the pipes has begun, and the INR 2.75 billion (NPR 4.4 billion or USD 41.4 million) project is expected to be completed by 2020.49 The pipeline will transport two million litters oil daily from Motihari in Bihar (India) to Nepal Oil Corporation depot in Amlekhganj. New

domestic

airport

Kavre:

Nagidanda located at Kavre district has been recommended as a potential site

for developing a new domestic airport to ease the air traffic congestion at the Tribhuvan International Airport. The total land area available at Nagidanda is 84 hectares out of which 22 hectares is private land. The aerial distance between the Tribhuvan International Airport (TIA) and the proposed site at Nagidanda is 8.5 nautical miles. The short aerial distance is a significant constraint as it increases the possibility of traffic conflict between the TIA and Nagidanda.50 Kalanki subway on the last stage of completion: The much awaited four-

lane 800-meter underpass in Kalanki

Source: Statista 2018

is almost complete. The NPR 5.13 billion (USD 48 million) project is part of the 10.5 km Kalanki– Koteshwor stretch being built on China’s grant. The project began in 2013 but got delayed due to the 2015 earthquakes and India’s trade blockade.51 Mailung-Syaphrubeshi section: The

Mailung Syaphrubeshi road section of the Rasuwagadhi–Kerung border point has been completed. The construction began in January 2015 with an estimated cost of NPR 706.9 million52 (USD 6.7 million). This road section is critical for implementing the

33


34

DOCKING NEPAL’S ECONOMIC ANALYSIS

Transit Transport Agreement between Nepal and China. With completion of the Mailung Syaphrubeshi road section the total road distance will be reduced by approximately 25 km. Kathmandu-Terai

Fast

Track:

The controversy surrounding the Kathmandu-Tarai Fast track to provide an annual minimum revenue guarantee of NPR 15 billion (USD 141 million) prompted the government to scrap all prior agreement with the Infrastructure Leasing and Financial Services (IL&FS). The government handed over the project to the Nepal Army with the option of purchasing the Detailed Project Report (DPR) from IL&FS. However, the Army

termed the DPR prepared by the IL&FS as incomplete and invited firms for Expression for Interest (EoI) to develop a new DPR. The IL&FS has submitted a bill of NPR 3.17 billion53 (USD 29.8 million) to the Ministry of Physical Infrastructure and Transport for the DPR report it had prepared. An alternative to the Mahendra Highway: The government is planning

to construct a 1,100 km Chure highway extending from Kakarvitta (east) to Kanchanpur (west) as an alternative to the current East-West Mahendra Highway. A 315 km highway from Dharan to Hetauda is already under construction which is a part of the

Chure highway. It is estimated that 25% of the Dharan–Hetauda road section is already completed. Further, the feasibility study of the 150 km Dharan–Kakarvitta road section is underway. The Chure highway is estimated to cost NPR 50 billion (USD 471 million).54 Kaligandaki road corridor construction gathering pace: The

construction pace of the NorthSouth Kaligandaki road corridor has gathered pace bringing hope for an improved standard of living along the 435 km road. The highway passes through Nawalparasi, Palpa, Tanahu, Syangja, Gulmi, Baglung, Parbat and Myagdi and Mustang.55

Table 2: Road Network province wise Province

Category (Road Network)

Province No. 1

District Road Core Urban Road Rural Road Total District Road Core Urban Road Rural Road Total District Road Core Urban Road Rural Road Total District Road Core Urban Road Rural Road Total District Road Core Urban Road Rural Road Total District Road Core Urban Road Rural Road Total District Road Core Urban Road Rural Road Total District Road Core Urban Road Rural Road Total Road Network

Province No.2

Province No.3

Province No.4

Province No.5

Karnali Province

Province No.7

Total

Total Road 5,777 0 6,122 11,899 2,519 0 3,176 5,695 5,288 363 9,249 14,900 4,134 5 6,831 10,970 4,133 0 4,470 8,603 1,750 0 857 2,607 2,525 0 1,199 3,724 26,126 368 31,904 58,398

Earthen (Fair Weather) 4,614 0 4,363 8,977 812 0 1,985 2,797 4,072 62 7,237 11,371 3,299 3 6,006 9,308 2,426 0 2,905 5,331 1,579 0 825 2,404 1,767 0 937 2,704 18,569 65 24,258 42,892

Gravel

Black Topped 799 0 1,617 2,416 1,595 0 1,176 2,771 835 100 1,723 2,658 581 1 697 1,279 1,201 0 1,467 2,668 131 0 23 154 643 0 251 894 5,785 101 6,954 12,840

364 0 142 506 112 0 15 127 381 201 289 871 254 1 128 383 506 0 98 604 40 0 9 49 115 0 11 126 1,772 202 692 2,666


NEFPORT ISSUE 33 – JUNE 2018

EIA report of second international airport approved: The Ministry of

Forest and Environment has finally approved the Environmental Impact Assessment (EIA) report of the Nijgadh International Airport. The project had not moved ahead due to an ongoing discussion with Landmark Worldwide about the payment for the DPR.56 The airport will be spread over 8,000 hectares, and the cost is estimated at USD 1.21 billion (NPR 128.5 billion).57 New domestic airports: The Rajbiraj

airport which remained closed for 11 long years will finally come

into operation with Shree Airlines completing the test flight.58 Similarly, Summit air completed test flight at Achham Sanfebagar airport making it the first time in the last 13 years for a plane to land in Sanfebagar.59 MoU for monorail feasibility signed with China Railway: The Kathmandu

Metropolitan City signed a Memorandum of Understanding (MoU) with China Railway 25 Bureau Group Co Ltd of China Railway Construction Corporation (CRCC) for conducting a feasibility study of 27 km Monorail rail system along the ring road. As per the MoU

the feasibility study will be completed within six months.60 Feasibility study of Kerung– Kathmandu railway project begins:

The feasibility study of NPR 69 billion (USD 649.4 million) and 75-kilometer-long Kerung– Kathmandu railway has started. China Railway First Survey Design Institute Group will submit the feasibility report by August 2018. A DPR is yet to be prepared to identify the nitty-gritty of the project but a preliminary study indicates that it will take at least seven years to complete the project.61

Budget highlights 2018/19 •

NPR 19.35 billion (USD 182.1 million) for improvement in aviation infrastructure

NPR 83.9 billion (USD 790 million) for energy sector which includes transmission and generation

NPR 109.38 billion (USD 1 billion) for transport infrastructure (roads, rails, tunnels)

NPR 151 billion (USD 1.4 billion) allocated for post-earthquake reconstruction

NPR 4.5 billion (USD 423.5 million) Madan Bhandari East-West

Source: Budget speech 2018/19

Table 3: Road Facility Extended by Department of Roads (In Kms) Description

2070/71

2071/72

2072/73

2073/74

2074/75*

Black Topped

11,197

11,798

12,173

12,803

13,149

6,086

6,287

6,460

6,822

6,956

Graveled Earthen (Fair Weather) Total

9,163

9,411

9,675

9,492

9,534

26,446

27,496

28,308

29,117

29,639

*First 8 months of FY year

Source: Ministry of Finance, Economic Survey 2017/2018

Table 4: Status of Road Facility Expansion Description

Fiscal Year Units

New Road construction

Km

2070/71

2071/72

2072/73

2073/74

2074/75*

1180

648

639

809

522

Graveled Road

Km

685

401

345

992

480

Upgraded to Black Topped

Km

538

601

264

630

346

Road Maintenance(Regular)

Km

8200

8908

9200

9500

9500

Periodic Maintenance

Km

400

350

443

214

214

Bridge construction

Unit

72

73

63

72

22

*First 8 months of FY year

Source: Ministry of Finance, Economic Survey 2017/2018

35


36

DOCKING NEPAL’S ECONOMIC ANALYSIS

“ OUTLOOK It is noteworthy that 29,639 km road was built during the first eight months of the current fiscal year 2017/2018. Intra connectivity within the country has improved as roads have connected 75 district headquarters. Table 1 shows the detailed break up of road construction.The completion and approval of the EIA report of proposed airport at Nijgadh mark the way forward for the project. On the flip side the social cost of building the airport includes felling 2.4 million trees, disturbance to four rivers that flow through the site and 1,476 squatters will need to be relocated. In recent years the development of railway connecting Kathmandu to the north (China) and south (India) has gathered momentum. It is noteworthy that Nepal had approximately 53 km of railway transport in 1927 which included the Janakpur – Jainagar rail line and the Amlekhgunj – Raxual railway. Many other feasibility studies are being conducted, but financing modality remains a prime concern. The financing modality of Kerung – Kathmandu railway is not clear as China is yet to make a concrete decision for providing the grant to construct the proposed railway. The same goes for the Kathmandu – Raxual Railway. Reducing the growing infrastructure gap should be a priority so that the country can graduate from a Least Developed Country to a middle-income group by 2030. Infrastructure financing has mostly come through government expenditure. It is time the government involves the private sector in infrastructure development by strengthening the environment for Public Private Partnership.


NEFPORT ISSUE 33 – JUNE 2018

INFORMATION AND INFORMATION AGRICULTUREAND COMMUNICATION TECHNOLOGY COMMUNICATION TECHNOLOGY The launch of a new mobile application that gives users air quality updates of the capital and mobile services being enjoyed by the residents of Upper Dolpo for the first time were the significant developments in the information and technology sector. Additionally, the government’s decision to digitize its financial transaction; offer online registration and management of intellectual property, and free Wi-Fi services in public areas of Kathmandu are also likely to have a positive effect on the sector. Air quality update for Kathmandu:

A new mobile application called Safa Hawa was jointly launched by the US Ambassador to Nepal Alaina B Teplitz and Durga Prasad Dawadi, Director General Department of Environment (DoE), in March. Bidhee Pvt Ltd developed the app with the support of the US Embassy in Nepal to help the government deal with the deteriorating air quality in the country, especially Kathmandu Valley. The app provides hourly updates on the quality of air in different areas of the city recorded through monitoring stations at the US Embassy premise and Thamel. Safa Hawa app users will receive information on PM 2.5, ozone content and health tips. Users can download the free application available for both iOS and Android platforms in Nepali and English languages.62 Mobile service in Upper Dolpa:

Telecommunication services have gradually started to cover remote areas with the Nepal Telecom (NTC)

working to extend their coverage to about 175 new locations across the country from last year.63 In this process, the government owned utility has started their telecom service for the first time in Upper Dolpa. The operation of a new BTS tower (operates with a VSAT satellite link) in Dho area of Upper Dolpa made this possible.The Dho tower is a micro BTS which can provide 14 calls at a time. Though it’s a positive step, the small number of simultaneous calls cannot meet the demand of the people there.64 Free Wi-Fi zones in the Capital:

The Kathmandu Metropolitan City (KMC) representatives and officials of World link Communication Pvt. Ltd signed an agreement in April to provide free wireless internet access to selected public places starting from June. This includes UNESCO World Heritage sites like Boudhanath Stupa, Swoyambhu and Pashupati area as well as public parks. Initially, internet the speed of

11 Mbps bandwidth will be provided from 2 to 11 access points in various places depending on the number of visitors. It is estimated that at a time 200 to 300 people in each area can enjoy free internet service for 30 minutes every day.65 Online registration of IP: The Ministry of Industry, Commerce and Supplies has started work to offer online registration and management of Intellectual Property (IP) in a bid to facilitate patent, trademark, design and copyright protection. The Patent, Design and Trademark Act 1965 and the Copyright Act 2002 govern IP cases. The paperless system that the government was mulling to introduce would stimulate registration of IP. Once the system is ready, applicants can submit documents to register their brands and logos online. However, the absence of laws governing digital signatures and online payment systems could prevent full-fledged implementation of the paperless system.66

37


38

DOCKING NEPAL’S ECONOMIC ANALYSIS

Government transactions to go digital: Minister Yubaraj Khatiwada

inaugurated the campaign to digitize all financial transaction conducted

by the state. The system is now available at the Taxpayers’ Office in Thamel as a first phase. Soon the revenue system would also migrate

to the electronic world, after which the taxpayers can pay taxes online directly from their bank accounts using mobile phones.67

“ OUTLOOK The initiatives taken by the government to introduce online procedures and promotion of free internet in major public areas require proper implementation procedure and awareness among the people for quicker transitioning towards a digital economy. Telecommunication services play a vital role in promoting better communications within the country and also for the implementation of online transactions through user-friendly payment applications. Therefore, the focus of the government should be to link all the regions of the country with better telecommunication and internet facility. The budget allocated for Education, Science and Technology sector in FY 2018/19 is NPR 134.51 billion (USD 1.26 billion) which is among the highest allocations. Establishment of Madan Bhandari Science and Technology Foundation this year would provide an excellent platform for the people to contribute towards this sector.


NEFPORT ISSUE 33 – JUNE 2018

REALESTATE ESTATE REAL With the rapid and incessant growth in population and increased migration to growing cities, the demand for housing seems incomprehensible. Many of the cities in Nepal are slowly facing scarcity of land and exaggerated land and housing price. However, with increased demand for land and housing, the existing infrastructures are being overburdened leading to defunct infrastructure services.

Revenue from land and building registration: During the current

fiscal year 2017/18 income from capital gain from the sale of land and building amounted to NPR 3.79 billion (USD 15.6 million). Revenue from land registration stood at NPR 12.55 billion (USD 118.12 million). During the same period, revenue from other fees stood at NPR 17.59 billion (USD 165.56 million).68

Oriental claim

cooperative customers compensation: The

committee formed to settle the claims of Oriental Cooperative and Apartment realty scam has received a total of 7,500 complaints. It was reported that Oriental Cooperative misused deposits to the tune of NPR 4.2 billion including NPR 1.36 billion paid in advance by customers for housing projects.69

Tax on income of house rent in Kathmandu: The Kathmandu

Metropolitan City (KMC) has announced that house owners will now have to pay 12% tax to the local level. However commercial building owners will have to pay 10% to the central government and 2% to the local level. During the first nine months of the current fiscal year 2017/18, the KMC collected NPR 210 million in house rent taxes.70 It is estimated that only 20% of house owners are currently paying taxes.

“ OUTLOOK Real estate continues to be the largest component of wealth for many Nepalis. Currently, NPR 400 billion (USD 1.8 billion) is invested in the real estate sector.71 Investment in real estate is perceived as a safe investment, and rapid urbanisation driven by rural migration to cities have pushed real estate growth. As a result, the real estate and housing market of major cities in Nepal have become unaffordable for the vast majority of the people. The national annual demand for housing is estimated at 140,000 units with only 25,000 units in supply per year.73 The budget for fiscal year 2018/19 has reduced the limit on which capital gain tax will be chargeable. The limit has been reduced from NPR 3 million (USD 28,000) to NPR 1 million (USD 9,400). Further, the budget lays restriction on conversion of agriculture land to residential use. The budget also lays down provision for real estate companies to deal in sale and purchase of land and buildings.

39


40

DOCKING NEPAL’S ECONOMIC ANALYSIS

EDUCATION EDUCATION The first quarter of 2018 marked the six-month anniversary of the Local Level Governance Act and with that came the dissolution of district education offices, the former apex bodies for education at the district level. While the government has established Education Development and Coordination Units to assume some of the responsibilities formerly held by district education offices, the extent of their jurisdiction is not yet clear. Confusion persists among local governments on how to manage the school sector, a problem compounded by the central government’s failure to deploy staff to the local level. Meanwhile, in its five-year roadmap and three-month action plan, the government has laid out ambitious plans to reform the education sector in line with the federal system of governance. For now, primary goals such as universal primary school enrolment remain unattained.

EDCUs to replace DEOs: The Local

Level Governance Act, which came into effect from October 2017, gave local governments the authority to manage school education up to Grade eight. The Act specified that all district level mechanisms of the school sector would be closed six months after the Act came into effect, i.e. by April 2018, and that their authority would be transferred to local governments.

Amidst concerns that the dissolution of District Education Offices (DEOs) would lead to a vacuum in the education sector, the Ministry of Education, Science and Technology (MoEST) has announced that Education Development and Coordination Units (EDCUs) will replace DEOs under the federal setup.72 EDCUs will operate under District Administration Offices and will oversee examinations of grades eight and ten, among other responsibilities. The ministry has directed existing Chief Education Officers to take on the responsibility as head of EDCUs.

Education Ministry struggles to deploy staff to local levels: Despite

the authority entrusted to them, a high degree of confusion persists among local governments on how to manage public school. The failure of the central government to mobilise staff to the local level and the lack of experience among local bodies to execute tasks assigned to them have been cited as reasons for the lack of progress in school sector management in the changed context.73

With little progress in staff mobilisation, the Ministry of Federal Affairs and General Administration (MoFAGA) has urged the MoEST to deploy 1,616 officials (16 Under Secretaries, 787 gazetted officers, 812 non-gazetted officers) to the local levels as soon as possible. In the federal setup, each local government has a separate department to govern the education sector within its area. Though the Chair or Mayor of the local government leads the department, the administrative head of department has

to be from the central government. According to the central government’s Organisation and Management Plan for Local Bodies, Under Secretaries will head the education departments of metropolitan and sub-metropolitan cities, and gazetted officers will head the education departments of municipalities and rural municipalities.74 Five-year roadmap for education reform: The MoEST has unveiled

a five-year roadmap to reform the education sector. The 10-point roadmap highlights structural and organisational changes required to improve the quality of education.

The roadmap emphasises overarching goals of free and compulsory education up to grade 12 and an education system based on research and innovation. It also delineates plans to establish a native-language residential school in every province, specialised art, and sports schools, revise quotas for teachers and provide


NEFPORT ISSUE 33 – JUNE 2018

high-speed internet services in all schools. Additionally, there is mention of the implementation of green zone programmes in schools, private school scholarship programmes for students from deprived and poor communities, classification of universities into national and provincial universities, the appointment of universities’ office bearers through open competition and the establishment of e-library and e-learning centres at every local level. The roadmap also lays out the ambitious plan to achieve nation wide literacy within two years. The MoEST has stressed that the roadmap will be implemented in coordination with the local and provincial governments and has pledged to take necessary action to achieve the goals.75 Education Ministry unveils 3-month action plan: As a follow up to the

roadmap, the MoESThas unveiled a 30-point action plan for the next

three months (April 2018 to July 2018). The action plan outlines the actions necessary to achieve the targets outlined in the roadmap. Agendas to be completed within a month include the establishment of a national curriculum framework of school education and restructuring of the high-level national education commission. The plan aims to draft a Federal Education Bill, Rights-based Education Bill and prepare model laws for provinces and local bodies within the next two months. Similarly, agendas to be completed within the next three months include drafting Integrated Higher Education Bill, introducing subsidised loan schemes for higher education and establishing investment model for universities and community school improvement framework. Guardianship increase school enrolment: To increase school

enrolment ahead of the new academic

session, the government launched a month-long school enrolment campaign where it promoted public figures and community members to become guardians of children from disadvantaged and low-income groups. The government estimates that there are currently 88,713 out-of-school children between the ages of five and nine and 224,287 between the ages of nine and twelve years old.76 Prime Minister KP Sharma Oli launched the campaign by taking guardianship of three students from Siraha and Mugu districts. By the end of the campaign, 377 individuals were found to have taken guardianship of 709 out-of-school children.77 A spokesperson for the Ministry of Education, Science and Technology said that it had successfully enrolled 33,344 of the 88,713 out-of-school children between the ages of five and nine, leaving some 54,369 children still to be enrolled.

Budget highlights NPR 134.5 billion (USD 1.27 billion), i.e. 10.19% of the total budget for FY 2018/19 has been allocated for the education sector. It represents a negligible increment from the budget allocated in the previous fiscal year. It is notable that the 1% tax on education has been scrapped. Furthermore, the budget envisions: l Achieving nationwide literacy within two years l Providing nutritious lunch for students up to grade five l Access to high-speed Internet in every public school l Providing education loans to students from marginalised, financially deprived and targeted recipients at an interest rate of 5% l Establishing technical and vocational schools in all local levels

41


42

DOCKING NEPAL’S ECONOMIC ANALYSIS

Table 5 Estimated Expenditure for FY 2018/19 Title Pre-primary and primary education Non-degree education Support services for education Research and Development Others Total

“ OUTLOOK

Total 60241.20 (567.03)

Figures in NPR million (USD million)

Federal

Provincial

Local

40.00

489.50

59711.70

(0.38)

(4.61)

(562.05)

37374.80

10014.50

1984.60

25374.70

(351.79)

(94.26)

(18.68)

(238.84)

33855.00

33579.30

275.70

(318.67)

(316.07)

(2.60)

15.30 (0.14)

15.30 (0.14)

0

2702.20

2566.10

107.50

28.60

(25.43)

(24.15)

(1.01)

(0.27)

134188.50

46215.20

2857.30

85115.00

(1263.06)

(435.01)

(26.89)

(801.16)

Total % of Budget

0 0

10.19

The next quarter will be important for the education sector with the MoEST putting its three-month action plan into effect. In particular, the formulation of the three draft bills—Local and Provincial Education Act, Federal Education Act and Act for Compulsory Education—will be vital as they will clarify the roles of local, provincial and federal governments in the management of the school sector.


NEFPORT ISSUE 33 – JUNE 2018

HEALTH HEALTH An Upsurge in cases of type B influenza virus and vitamin D deficiency have raised health concerns in the country. Meanwhile, medical drones reaching remote areas along with various plans to increase pharmaceutical production in Nepal were the positive developments witnessed in the health sector during the review period.

Type B flu: Increase in a number of

type B influenza viruses in Nepal has been noticed at Sukraraj Tropical and Infectious Disease Hospital, Teku during the month of May. Influenza A Subtypes H1N1pdm09 (swine flu) and H3N2 (Hong Kong flu) are detected in the country every flu season. Patients who have had influenza-like illness were later found to have suffered from type B flu. However, dozens of patients with influenza B were treated uneventfully this year. It has been observed that the B flu is becoming more common but with unusual symptoms, and perhaps even more severe than before.78

Anti-cancer drug production: An

Indian pharmaceuticals company, Tizig Pharma Pvt. Ltd., will be investing NPR 351 million (USD 3.30 million) to build a cancer drug plant in Bhaktapur to cash in on the demand of anti-cancer drugs in Nepal. According to the investment permission issued to the company by the Department of Industry (DoI), the plant will produce 400,000 boxes of tablets and capsules including 150,000 boxes of anti-cancer drugs annually.79

Medical drone: In April, the medical

drone reached Ramche, Annapurna Rural Municipality-8, Myagdi

carrying 1 kg of medicines from Himanchal Secondary School (HSS), Nangi, flying a distance of 1.5 km at an altitude of 1,500 m. The drone was gifted by the National Innovation Centre (NIC) led by social activist Mahavir Pun, for delivering medical supplies and bringing medicines and sample of human fluids to laboratories from difficult-to-reach areas. People in remote areas do not have access to proper healthcare facilities due to which they have to walk or be carried for long distances when they fall ill. As a start, the drones will be used in Ward 7 and 8 of Annapurna Rural Municipality.80 New product every month: The country’s oldest pharmaceutical company manufacturing allopathic drugs, the state-owned Nepal Drugs (ND), has prepared an aggressive plan to launch a new product every month besides expanding its manufacturing capacity. So far the company had been making oral rehydration salts, distilled water, and glycerine. However, since the end of February, it started producing Paracetamol, an analgesic and has already started the work to produce iron tablets and Albendazole, a medication used for the treatment of a variety of parasitic worm infestations. Furthermore, the public enterprise has 110

employees and its two laboratories are now equipped with 28 advanced technology devices like Spectroscope, UV Visible Spectroscopy, Incubator and Autoclave.81 Vitamin D deficiency: The number of patients suffering from Vitamin D deficiency is on the rise with 20% of the patients visiting the hospitals found to be suffering from it. Changes in lifestyles and food habits have been attributed to the rise in the cases of vitamin D deficiency. It is found to be more common in urban areas as people do not get enough exposure to the sun. In addition, nutrition and genetic factors too play a role in maintaining the required level of Vitamin D in the human body. Doctors therefore have suggested people stay in sunlight in order to minimize the risk of Vitamin D deficiency.82 According to a study, people suffering from vitamin D deficiency are at higher risk of suffering from diabetes. According to the search conducted by the Tribhuvan University Teaching Hospital (TUTH), among 100 diabetic patients, 85 percent of them were found to be suffering from vitamin D deficiency. As per Dr Binod Kumar Yadav, chief of Department of Biochemistry at Institute of Medicine, TUTH the deficiency is also witnessed in pregnant women

43


44

DOCKING NEPAL’S ECONOMIC ANALYSIS

and people suffering from psychiatric problems.83 Unsettled accounts at Health Ministry: The Office of Auditor

General (OAG) has reported unsettled accounts at the Ministry of Health (MoH) amounting to Rs 2.64 billion in the FY 2017/18.The preliminary report of the OAG showed NPR 2.69 billion (USD 25.32 million) was unaudited at the ministry. After the initial report was provided to the MoH, it recovered NPR 48.9

million (USD 0.4 million). Out of the unaudited budget, Rs 1.19 billion (USD 11.20 million) had been issued as advance budget.84 Safe Motherhood Year: The Ministry of Health has declared Nepali year 2075 as ‘Safe Motherhood Year’ while observing the Fifth National Safe Motherhood Day-2075 at the Tribhuvan University Teaching Hospital (TUTH), Kathmandu on 16 April 2018. The government has planned to observe the campaign

for consecutive two years and will have four phases. It has set a target of establishing a safe motherhood fund at the local level to be used during emergency maternity services. Additionally, the campaign will include screening women for cervical and breast cancer at all health facilities; public awareness on motherhood along with the participation of adolescents; essays and debates; young girls’ education on menstrual health and hygiene; and nationwide distribution of sanitary pads.85

“ OUTLOOK The budget allocated for the health sector for FY 2018/19 is NPR 56.42 billion (USD 531.06 million) which is higher than that of the previous year of NPR 41.09 billion (USD 386.76 million). Despite government‘s constant efforts to strengthen the health sector, the country seems to be facing threats from new health problems. Awareness among people regarding prevention and treatment of such new diseases is a must. More vigilance is also required by health facilities in the coming days, especially with the monsoon just around the corner. The “medical drones” have given hopes to the remote population which further requires proper implementation and support from the government to benefit the mass.


NEFPORT ISSUE 33 – JUNE 2018

TOURISM TOURISM The key highlights this quarter include the formation of the 100-day action plan to speed up the implementation of stalled tourism and airport infrastructure projects, provincial governments initiating their respective tourism promotion and the Nepal Rastra Bank (NRB) redefining the tourism sector to enable more areas for receiving loans from Banking and Financial Institutions (BFIs). With these developments, a Central Bureau of Statistics (CBS) has projected 9.77% growth in the hotel and restaurant sector for the FY 2017/2018, a World Travel and Tourism Council (WTTC) estimates tourism sector contribution to GDP could reach NPR 205.2 billion (USD 1.93 billion) in 2018 and the government sets a tall order to welcome 1.5 million tourists to Nepal by 2020. Tourist arrival rise: According to the Department of Immigration, the number of tourist arrivals rose 13% to 386,030 individuals in the first four months of 2018 as compared to the same period last year.86 Nepal welcomed 98,650 tourists in April 2018, up from 11.4% compared to the corresponding period last

year. India was the largest source of tourists with 16,612 Indians visiting Nepal in April. Similarly, tourist arrivals from China, Sri Lanka, the USA, Canada, France, Thailand, Malaysia, Australia and New Zealand also improved in the first four months of 2018. However, tourist arriving from Bangladesh,

UK and Germany declined in April 2018. The collective efforts of the government, private sector, and the Nepal Tourism Board have led to a record number of travellers. Figure 17 highlights the tourist arrival for the year 2008/2017 and Figure 18 highlights the tourist arrival in Nepal for the first four months in 2018.

Figure 17:Tourist Arrival (2008-2017)

TOURIST ARRIVAL (2008-2017) 1000000

Number of Tourist

900000 800000 700000 600000 500000 400000 300000 200000 100000 0 2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: Department of Immigration

45


46

DOCKING NEPAL’S ECONOMIC ANALYSIS

Figure 18: Tourist Arrival for the first four months in 2018

TOURIST ARRIVAL 124,686

73,188

98,650

88,975

JANUARY FEBRUARY MARCH

APRIL

Tourist Arrival Source: Department of Immigration

MoCTCA revealed 100-day action plan: The Ministry of Culture, Tourism

and Civil Aviation (MoCTCA) unveiled the government’s 100-day action plan focusing Nepal’s tourism industry.87 Figure 19 below highlights the MoCTCA’s 100-day action plan:

restaurants to the GDP is expected to rise by 2.05% in the current FY 2017/18. Similarly, the Gross Value Added (GVA) growth in hotel and restaurant sector is projected to grow by 9.77% to NPR 556 billion (USD 5.23 billion) in the current

domestic tourist movement are major factors behind the rise in GVA by hotel and restaurant sector. Being free from load-shedding has made energy cheaper for hotels and restaurants, which has also helped to increase the contribution of the sector to GVA.

Figure 19:MoCTCA 100 Day Action Plan MoCTCA 100-day Action Plan Operating TIA for at least 21 hours daily, up from 18 hours Environmental Impact Assessment (EIA) and the finalisation of the construction modality of the second international airport at Nijgadh Resolving the conflict in the reconstruction of Rani Pokhari Opening the Hanuman Dhoka Palace Museum to the public by building a temporary structure Forming a think tank to gather suggestions and feedback on a regular basis Drafting a Casino Act to streamline the industry Digitalising and consolidating archives of national importance Forming a committee to develop a tourism satellite account Preparing a Detailed Project Report (DPR) to develop model tourist destinations in each of the seven provinces Establishing a secretariat for Visit Nepal Year 2020 Building 10 Km long Guerrila Trail and Yarsa Trail Purchasing at least six twin otter aircraft to serve remote areas

CBS projects 9.77% growth in hotel and restaurant sector:

According to the report published by the Central Bureau of Statistics (CBS), the contribution of hotels and

fiscal year compared to 7.33%, i.e., NPR 447 billion (USD 4.20 billion), in FY 2016/17.88 The growth in tourist arrivals, international tourism campaigns and healthy growth in

Karnali-Rara Tourism Year 2075:

Prime Minister KP Sharma Oli inaugurated the Karnali-Rara Tourism Year 2075 on the occasion of Nepali New Year from Rara


NEFPORT ISSUE 33 – JUNE 2018

Lake in the Mugu district. The Rara Lake is the biggest and deepest freshwater lake in Nepal and one of the popular tourist destinations in Karnali region. Addressing the nation, prime minister laid out his vision for a prosperous country, presenting nationality, democracy, social justice, peace and stability as the five bases of Nepal’s development.89 The Chief Minister of Karnali, Mahendra Bahadur Shahi had unveiled the logo and slogan for the campaign.90 The provincial government of Karnali has requested both domestic and international tourists to visit Rara.

Travel and Tourism Economic Impact 2018: The report entitled

‘Travel & Tourism Economic Impact 2018’, published by World Travel & Tourism Council (WTTC), unveiled that Nepal’s travel and tourism sector contributed NPR 195 billion (USD 1.83 billion) into the economy.91 Figure 20 highlights the Travel and Tourism Economic Impact 2018 of Nepal. NRB redefines the definition of tourism for lending: Nepal Rastra

Bank (NRB) has redefined more areas as tourism sector to help them receive loans from Banking and Financial Institutions (BFI). As per the NRB requirement, commercial banks must allocate at least 25% of their total

lending to priority sector.92 Out of 25%, BFI must allocate 5% loan to the tourism sector. The new definition of the tourism sector includes tour operator, healing centre and massage spa. Adventure tourism activities, cultural, religious and sports tourism also feature in NRB’s new list of areas of the tourism sector. BFI can lend money to tourist residence, rural tourism, motel, homestay, resort and restaurant, eco-tourism and wildlife reserve. Earlier, these areas were not featured in the tourism sector. The recovery in the tourism sector has led to a rise in demand for loans in the tourism sector. Hence, the new rule is expected to help BFIs to meet NRB’s mandatory requirement.

Figure 20: Travel and Tourism Economic Impact 2018 Economic Contribution Tourism contribution to GDP (in NPR Billion) Direct contribution of tourism to GDP (in NPR Billion)

2017

2018*

2028*

195

205.2

299.5

99.8

104.7

152.4

Capital Investment (in NPR Billion)

17.3

18.7

29.4

Domestic tourists spending (in NPR Billion)

96.2

100.4

140.7

Foreign tourists spending (in NPR Billion)

72.5

76.3

127.1

Spending on outbound travel (in NPR Billion) Leisure travel spending (in NPR Billion) Business travel spending (in NPR Billion) Direct jobs generated Total contribution to employment (in Million) Tourist arrivals All values are in constant 2017 prices and exchange rates; *=estimates

23.6

27.1

44.3

144.1

150.1

226.5

24.6

26.6

41.2

4,97,500

5,17,000

638000

1.02

1.07

1.32

9,40,218

1.04 m

1.67 m

Source: World Travel and Tourism Council (WTTC)

“ OUTLOOK Operating the TIA for at least 21 hours daily is a good step to reduce air traffic congestion. Moreover, the construction of tourism-related National Pride Projects (NPPs) such as Gautam Buddha airport, Pokhara airport, and Nijgadh international airport should be completed within the stipulated time to increase air connectivity with the outside world. As NRB has extended the definition of the tourism industry, BFIs should come up with a lending package to encourage tourism entrepreneurs to invest and create more jobs in the sector. Development of tourism infrastructure is one of the key areas that should be given priority as tourist arrivals are increasing every year. All provinces shall promote at least one tourist destination to increase the inflow of tourist in the respective provinces like the Karnali-Rara Tourism Year 2075. For the development and promotion of the tourism sector the government has allocated NRS 5.20 billion (USD 48.94 million) in the annual budget for FY 2018/19.

47


48

DOCKING NEPAL’S ECONOMIC ANALYSIS

TRADE AND DEBT AGRICULTURE TRADE AND DEBT

The key highlights of the review period were the agreement between Nepal and India to amend the Treaty of Transit 1999 and ferrying of Nepal bound cargo containers to Jogbani by The Container Corporation (CONCOR) of India for the very first time. In the first nine months of FY 2017/18, the total import to Nepal rose 20.6% while the export grew by merely 8.2%, consequently pushing up the trade deficit by 21.7%. Foreign Trade Scenario: In the

current review period, merchandise exports improved by 8.2% with total exports amounting to NPR 59.74 billion (USD 0.56 billion) as compared to the increment of 12.1% during the same period last fiscal year. Exports to Nepal’s immediate neighbours, India and

China, increased by 6.9% and 58.9% respectively, while exports to other countries witnessed a rise of 7.1%. However, the growth in exports still lags behind in terms of both value and rate. Nepal imported merchandise worth NPR 876.29 billion (USD 8.25

billion) in the current fiscal year, a rise of 20.6%. It is a modest rise in comparison to an increase of 39.7% in the same period of the last fiscal year. While imports from India has increased by 21.9%, imports from China and other countries also jumped by 22.8% and 15.7% respectively.

Table 6: Foreign Trade Statistics for the first nine months of FY 2017/2018 (in billions). In NPR Billion

2015/16

2016/17

2017/18

Percent Change 2016/17

2017/18 8.2

TOTAL EXPORTS

49.2

55.2

59.7

12.1

To India

27.7

32.0

34.2

15.7

6.9

To China

1.1

1.2

2.0

8.5

58.9

To Other Countries

20.3

21.8

23.4

7.5

7.1

TOTAL IMPORTS

519.9

726.4

876.2

39.7

20.6

From India

312.7

472.7

576.1

51.2

21.9

From China

82.3

92.7

113.8

12.6

22.8

124.8

160.9

186.2

28.9

15.7

TOTAL TRADE BALANCE

-470.7

-671.1

-816.5

42.6

21.7

With India

-284.9

-440.6

-541.8

54.6

23.0

-81.1

-91.4

-111.7

12.6

22.3

-104.5

-139.0

-162.8

33.0

17.1

From Other Countries

With China With Other Countries TOTAL FOREIGN TRADE

569.2

781.6

936.0

37.3

19.8

With India

340.4

504.8

610.4

48.3

20.9

With China With Other Countries

83.5

94.0

115.8

12.5

23.3

145.1

182.8

209.6

25.9

14.7

Source: Nepal Rastra Bank Report: Current Macroeconomic Situation (based on first five month data of 2017-18)


NEFPORT ISSUE 33 – JUNE 2018

Top imports and exports: The

top three commodities exported in the first nine months of FY 2017/18 were woollen carpets, jute goods, and juice. In terms of value, woollen carpets amounting to NPR 4.9 billion (USD 0.04 billion) were exported from Nepal to other countries; juice worth NPR 3.3 billion (0.03 billion), and jute goods, mainly comprising of sackings, worth NPR 3.5 billion (USD 0.034 billion) was exported to India. Other top exported products include cardamom, readymade garments and textiles. Petroleum products continue to be the top import of Nepal with the country importing petroleum worth NPR 115.44 billion (USD 1.09 billion) in the review period. Similarly, vehicles and spare parts

are the second most imported product which in turn is responsible for the high demand and import of petroleum products in the country. In the review period, vehicles and spare parts worth NPR 80.025 billion (USD 0.75 billion) was imported from India, a staggering increase of 28.8% compared to last year. Trade deficit: In the first nine months of the FY 2017/18, Nepal’s total trade deficit widened by 21.7% amounting to NPR 816.55 billion (USD 7.69 billion). The export import ratio declined to 6.8% in the review period as compared to 7.6% in the last fiscal year. Moreover, the current account deficit as a percentage of GDP jumped to 7.8% in the review period from 0.38% in the previous year.

BOP deficit: The elevated levels

of import worsened the current account deficit resulting in an overall BOP deficit of NPR 14.60 billion (USD 0.14 billion). It is a stark contrast from a surplus of NPR 50.60 billion (USD 0.48 billion) in the same period last fiscal year. Treaty of Transit to undergo amendments: Nepal and India have

settled on an agreement to make amendments to the bilateral Treaty of Transit which was first signed in 1999 and was last revised in 2009. It was done in order to facilitate Nepal’s trade with third countries. Nepal will benefit immensely from the amendment as it will expand transit points for Nepal, simplify procedures and ensure electronic cargo tracking. The treaty was first signed between Nepal and India in 1999 and was later revised in 2009. 93

Figure 21: Nepal’s fuel imports in the first nine months of successive fiscal years.

NEPAL’S FUEL IMPORTS

NPR in Billion

1.7 1.4 1.1 0.8

2005

2006

2007

2008

YEAR

Source: Trade and Export Promotion Center

49


50

DOCKING NEPAL’S ECONOMIC ANALYSIS

India initiates a cargo train route linking Nepal: To create a second

cargo train route linking Nepal, India has introduced a trial route connecting Kolkata Port to Bathana in Bihar. The location is close to Jogbani–Biratnagar bordering point in Nepal. The extension of

the service is expected to make it easier for Nepal to trade with third countries. The railway line will connect Budhnagar in Morang where an integrated customs post is being constructed. The service will also

reduce transportation costs by at least NPR 1 (USD 0.009) per kg– the Kolkata–Bathana road distance is around 550 km. Moreover, nearly 70,000 goods containers arrive in Nepal annually from third countries. The link will reduce the cost faced by Nepali traders to a large extent.94

“ OUTLOOK Nepal has had to bear the brunt of an Increase in price of crude oil in the international market, leading to an increase in import bill and widening trade deficit amounting to NPR 816.55 billion (USD 7.69 billion). Nepal’s ballooning trade deficit alongside stagnant remittance growth could have an overarching impact on the overall macroeconomic performance of the county. It is therefore of immediate importance to revise existing strategies on international trade. Moreover, instead of production of low-quality traditional products, it would be wise to shift focus on production of high-value commodities with comparative advantage to compete in the international market.


NEFPORT ISSUE 33 – JUNE 2018

FOREIGN AID AGRICULTURE FOREIGN AID

Key highlights for the review period include an outline of foreign aid to Nepal, in the form of grants and loans, provided by the British government and the World Bank. In addition, the Nepal government successfully established the Millennium Challenge Account (MCA) and also renewed the controversial Small Grants Project. Meanwhile, the Asian Development Bank (ADB) funded projects performed exceptionally well in Nepal and set a record high score for the year 2017. Figure 22: Top ten donors for the year 2017 U.S. Agency for International Development

European Union

9%

11%

India

5% International Development Association

Department for International Development

28%

5% United Nations Children’s Fund

3% International Nepal Fellowship

2% German Development Cooperation (GIZ)

1%

Asian Development Bank

35%

World Bank Trust Funds

1% Source: Development Cooperation Report

ADB funded projects fare well: The

achievement in both contract and disbursement award target—the two measures of progress—set the ADB on a record high score for the year 2017. Disbursement target achievement of the ADB assisted projects witnessed an incremental rise of 88%, up by 30% as compared to 2016.

The ADB is one of Nepal’s largest development partners and is currently funding USD 24 billion for 35 development projects. The projects cover urban infrastructure and service, energy, transport, agriculture and natural resources, education and postearthquake reconstruction, among others. The success of the ADB funded

projects in Nepal can be attributed to the advanced procurement actions adopted by the Bank as a part of the readiness filter approved by the Ministry of Finance (MoF), utilisation of project preparation facilities and procurement reform within the ADB and Nepal’s Procurement Monitoring Office.95

51


DOCKING NEPAL’S ECONOMIC ANALYSIS

Figure 23: ADB project’s sector wise performance

ADB PROJECT’S PERFORMANCE BY SECTOR Uncontracted

Undisbursed

21

50 O

TH

ER S

16

143

230 RE

,N

ED

U

C

AT U

AT IO

RA L. ..

117

92

N

87

141

146

203 N N O

LT U

C

SECTOR

Donor-funded programmes remain clustered: Lack of disbursement

mechanism and performance reporting system have limited the transfer of donor-funded projects to the local levels. The allocated budget to be transferred to the current FY 2017/18 was NPR 5 million (USD 0.047 million) to rural municipalities, NPR 10 million (USD 0.094 million) to municipalities and NPR 20 million (USD 0.189 million) to submetropolis and metropolis levels. The transfer is unlikely to happen until the beginning of the next fiscal in mid-July. The donor-funded projects mostly include irrigation, drinking water and construction of road and public offices in the earthquakehit districts, which are now being monitored from the centre. The National Planning Commission (NPC) is responsible for classifying the projects under three categories to

AG

RI

C

U

RE

AN

SP

ST

O

RU

C

RT AT IO

TI O

N

Y ER G EN

TR

RB

AN

&

W AT E

R

33

187

287

453

471

219

266

363

USD in Million

601

761

Net amount

U

52

be implemented by federal, provincial and local governments, while the Ministry of Finance has to formulate the modality of disbursement of funds and project monitoring.96 Indian embassy to continue Small Grants Project: Despite a provision

also directs the embassy to bring the amount to be spent on Small Grants Projects under Nepal’s national budgetary system.97 World Bank approves USD 200 million credit: For the purpose

in the National Integrity Policy that bars all foreign countries, diplomatic missions and international nongovernmental organisations from directly funding projects in the country, the Nepal government has granted permission to the Embassy of India based in Kathmandu to continue with its Small Grants Projects across Nepal.

of improving public financial management, the World Bank (WB) approved a USD 200 million credit to Nepal. The Fiscal and Public Management Development Policy Credit is the first in a twopart programme to assist the Nepal government in establishing a framework for fiscal federalism and improved public financial management.

The extension of Small Grants Agreement (SGA) for the next three years allows the embassy to directly fund projects up to NPR 50 million (USD 0.47 million) across Nepal at its own discretion. The agreement

The framework is expected to aid the newly elected governments in delivering improved services. It will also help in the implementation of Inter-Governmental Fiscal Arrangement Act; adoption of


NEFPORT ISSUE 33 – JUNE 2018

Fiscal Responsibility and Budget Management Bill; strengthening public financial management systems; improving execution of budget; and revamping revenue collection. In addition, the WB has approved USD 66 million credit to streamline Phase II of the Rani Jamara Kulariya Irrigation Scheme. The scheme will provide support for agricultural production and strengthen the Irrigation Water User’s Association. Furthermore, as the project spreads across 14,300 hectares of land, it will largely benefit one of the poorest areas in Nepal located southwest of the Karnali basin in the Tarai region.98 Millennium Challenge Account (MCA) set up: The Government

“ OUTLOOK

of Nepal has set up the MCA to supervise the implementation of the US government-funded projects worth USD 630 million. With the establishment of MCA, the government has successfully met one of the preconditions of the grant agreement signed between MCC and the GoN in October 2017. The Millennium Challenge Corporation (MCC) will provide a grant worth USD 500 million to the MCA Nepal which will be used to execute the different schemes. The USD 500 million grant is a part of the USD 630 million ‘compact programme’ designed by MCC to strengthen Nepal’s energy and transport infrastructure. The remaining contribution will be made by the Nepal government.99

UK government to support road connectivity to Humla: The

UK government’s Rural Access Programme stepped forward to help link Humla to the rest of Karnali Province. The construction of Mugu-Humla Link Road (MHLR) will unleash the region’s economic potential by connecting Humla to the rest of the country. Even today, Humla district remains exclusively isolated and 50% of the population lives under the poverty line. The construction of this corridor will create about 600,000 employment days and provide jobs to approximately 1,300 workers, of which nearly 40% of them will be women. The selection process of the workers for the project will also prioritise households living along the corridor.100

Foreign aid continues contributing a significant amount to the annual budgetary requirement every year. However, due to lack of disbursement mechanism, the process of disseminating foreign assistance among its local and provincial units has failed to gain the required momentum, thus limiting the flow of development projects to regions already under the spotlight. There is a need to bring about drastic policy reforms in order to channelize these funds and disseminate them in favour of demand-driven projects, especially in the rural areas. The contribution of foreign grant to the federal budget 2018/19 is NPR 58 billion (USD 0.56 billion), while foreign loan is NPR 253 billion (USD 2.38 billion).

53


54

DOCKING NEPAL’S ECONOMIC ANALYSIS

REMITTANCE REMITTANCE Remittance inflow, as well as the number of outbound migrant workers has continued to decrease in the review period. The working condition for foreign workers in the host countries has also raised concerns with about 6,000 people dying in Malaysia and other middle-east countries in the past nine years. On the positive side, to protect the interest of migrant workers going for foreign employment, the government has issued a directive requiring recruiting agencies and foreign companies to get their work demand letters approved by the Nepali foreign missions. However, the recent fiscal budget has not been able to bring any lucrative policies for the sector despite the country’s excessive dependency on remittance inflow. Remittance

inflow

in

decline:

Remittance inflow increased by 5.6% to NPR 540.38 billion (USD 5.09 billion) in the first nine months of FY 2017/18 as compared to a growth of 6.3% in

the corresponding period of the previous year. Remittance has been declining since the second half of the FY 2015/16. The number of job seekers for foreign employment decreased by 6.8% to 281,405

in the first nine month of the fiscal year from 301,876 in the corresponding period of the last fiscal year. This decrease was 3.2% in the corresponding period of the previous year.

Figure 24: Outflow of Nepali migrant workers for Foreign Employment in first nine months of FY 2017/18 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000

2013-14

2014-15

2015-16

2016-17

2017-18

Source: Current Macroeconomic and Financial Situation (Based on Nine Month’s Data of 2017/18, Nepal Rastra Bank)


NEFPORT ISSUE 33 – JUNE 2018

Recruiters to get work demand letter approved by Nepali missions: The

Government of Nepal recently issued the ‘Foreign Employment Related Demand Letter Enquiry Directive (2018)’. As per the directive, recruiting agencies and foreign companies seeking Nepali migrant workers need to get their work demand letters approved by the Nepali foreign missions based in destination countries. As per the provision, the Nepali missions abroad would verify the demand letter submitted by companies or recruiting agencies on behalf of such foreign hiring companies for obtaining workforce from Nepal. The diplomatic missions will take up to 10 working days to verify the workers demand letter and will forward the letter to the Department of Foreign Employment

(DoFE) for final enquiry. Besides assessing the demand letter verified by agencies of the destination country, the foreign missions will also make sure the company is not blacklisted and has the valid permission from local authority to obtain workers from Nepal; gather information on situation of Nepali workers in the same company; basic salary; facilities, services and remunerations provided to workers; condition of workplace, housing, health and security situations. Earlier, hiring companies used to send their demand letters directly to the DoFE after taking approvals from local notary public offices and local Chamber of Commerce.101 Almost 6,000 Nepali workers have died in last nine years: According

to a government’s report, ‘Labour Migration for Employment—a Status Report for Nepal: 2015/162016/2017’—a total of 5,892 Nepalis (5,765 male and 127 female) have lost their lives working in foreign countries in the past nine years. These deaths have been reported from at least 28 destination countries. The highest number of Nepalis died in Malaysia totalling to 2,154, followed by Saudi Arabia (1,638), Qatar (1,203), the United Arab Emirates (427) and Kuwait (186). Refer Figure 25. Accordingly, the highest number of deaths (1,006) was reported in FY 2014/15 and lowest (90) in FY 2008/09. Out of the total deaths, 1, 3151 deaths were natural, 1,144 from cardiac, 798 from traffic accidents, 650 from suicide and 51 from murder.

Figure 25: No. of Deaths of Nepali Migrant workers in foreign countries in past nine years

Afganisthan Lebanon Oman Republic of Korea Bahrain Kuwait United Arab Emirates Qatar Saudi Arabia Malaysia

0

500

1,000

1,500

2,000

2,500

No. of deaths Source: Labour Migration for Employment—A Status Report for Nepal: 2015/16-2016/2017

55


56

DOCKING NEPAL’S ECONOMIC ANALYSIS

DoFE to set-up three offices outside capital: The Ministry of Labour,

Employment and Social Security has identified three places outside the capital, Itahari, Janakpur and Butwal, for providing work permits to those willing to go abroad for employment.

The government has also initiated the necessary works for its immediate implementation. It has been asserted that these offices will grant all kinds of work permits authorised by the law, and also migrant workers who are visiting their families do not need

to travel to Kathmandu just to renew their paperwork. The government has also been holding discussions with stakeholders to end all kind of syndicates prevailing in the foreign employment sector and send workers at the lowest possible cost.102

Budget 2016-17 Highlight The key highlights of fiscal budget for FY 2018/19 are as follows: •

Foreign employment opportunities will be used as a short-term strategy until sufficient employment opportunities are generated in the country. Foreign employment will only be allowed after completing intergovernmental labour agreement and skill development training. The services to obtain labour permit will be eased by establishing foreign employment service centres in every province.

Prime Minister Employment Programme will be initiated to generate employment opportunities. A budget amounting to NPR 3.10 billion (USD 29.19 million) has been allocated for the initiative.

• Migrant workers will be encouraged to send their remittance through banking channel and to invest in the productive sectors belonging to micro and small industries, tourism, agro-business, and employment-oriented service sectors. •

For the youths returning from foreign employment, project-based loan up to NPR 1 million (USD 9,412.65) will be provided after accreditation of skill for the business.

“ OUTLOOK

The government’s efforts to channelize the remittance into productive sectors and bringing in remittance through formal channel could play an important role in reversing the declining remittance. The new directive is also a step in the right direction as the security of the Nepalis going for foreign employment needs to be taken more seriously. However, now with the directive in place, its implementation needs to be prioritised. The government should be proactive to implement the right strategies to comply with its policies.


4 NEFPORT ISSUE 33 – JUNE 2018

MARKET

REVIEW

57


58

DOCKING NEPAL’S ECONOMIC ANALYSIS

BANKINGAND AND INSURANCE BANKING INSURANCE Despite the tight liquidity in the banking system, the commercial banks booked a healthy net profit margin of 15.5% at the end of third quarter of current fiscal year 2017/18. The commercial banks continue to transfer cost to the borrowers while their average interest spread at the end of third quarter of the current fiscal year was 5.46%, against the regulatory cap of 5% indicating higher margin for profit. Key Indicators

Some of the key macroeconomic indicators as per the macroeconomic and financial situation report based on the first nine months of fiscal year (FY) 2017/18 published by Nepal Rastra Bank (NRB) are highlighted below.

Deposit and Credit Mobilisation

Deposits at Banks and Financial Institutions (BFIs) increased 10.1% in the review period. Of the total deposits at BFIs, the share of demand deposits and fixed deposits increased by 8.7 % and 44.9% respectively while the share of saving deposits decreased from 36.6% to 35.8% in mid-April 2018. Likewise, credit extended to the private sector by BFIs increased by 16.9% in the review year as compared to an increase of 15.6% in the previous fiscal year. Credit mobilization of commercial banks, development banks and finance companies increased by 16.2%, 24.7%, and 10.0% respectively. Of the total outstanding credit of BFIs, 61.4% is against the collateral of land and building and 14.8% against the collateral of current assets such as agricultural and non-agricultural products. In terms of credit exposure, the outstanding credit of BFIs to real estate

loan increased by 13.3% and trust receipt loan extended by commercial bank increased by 70.9% during the year. Similarly, Hire Purchase loan increased by 10.0% while overdraft loan increased by 14.0%.

Liquidity Management

In the review period, NRB mopped up liquidity of NPR 130.25 billion (USD 1.23 billion) in the banking system through various open market operations such as deposit collection auction worth NPR 42.35 billion (USD 398.63 million) and reverse repo auction worth NPR 84.75 billion (USD 797.72 million). Likewise, BFIs used Standing Liquidity Facility (SLF) worth NPR 29.86 billion (USD 281.06 million) during the review period. Moreover, NRB injected net liquidity of NPR 329.62 billion (USD 3.10 billion) through the net purchase of USD 3.19 billion from foreign exchange market (commercial banks). Similarly, NRB also purchased Indian currency (INR) equivalent to NPR 382.47 billion (USD 3.60 billion) through the sale of USD 3.66 billion and Euro 40 million during the review year. INR equivalent to NPR 356.19 billion (USD 3.35 billion) was purchased through the sale of USD 3.22 billion and Euro 95 million in the previous year.

Foreign Exchange Reserves and Adequacy

The gross foreign reserves decreased to NPR 1,064.34 billion (USD 10.02 billion) at the end of mid-April 2018, a decreas of 1.4% compared to NPR 1,079.43 billion (USD 10.48 billion) in mid-July 2017. Out of the total foreign exchanges, reserves held by NRB increased by 2.8 % to NPR 953.26 billion (USD 8.97 billion) at mid-April 2018 from NPR 927.27 billion (USD 8.73 billion) as at mid-July 2017. The share of INR in total reserves stood at 24.7 % as at mid-April 2018. Based on the imports of FY 2017/18, the foreign exchange holdings of the banking sector is sufficient to cover the prospective merchandise imports of 11.1 months, and merchandise and services imports of 9.7 months. The ratio of foreign currency reserve-toGDP, reserve-to-imports and reserveto-M2 stood at 35.4%, 80.5%, and 37% respectively as at mid-April 2018.

Interest Rates

The weighted average 91–day Treasury bill rate increased to 4.98 % in the review period from 0.93 % a year ago. Likewise, the weighted average inter-bank transaction rate among commercial banks also rose to 4.12% from 0.75 % a year ago. Also,


NEFPORT ISSUE 33 – JUNE 2018

the weighted average base rate of commercial banks increased to 10.4 % from 8.6 % a year ago. Balance of Payments (BOP)

In terms of BOP, the current account fell into a deficit by NPR 171.64 billion (USD 1.62 billion) during the review period as compared to a deficit of NPR 10.34 billion (USD 97.33 million) during the same period of the previous FY 2016/17. Likewise, the overall BOP posted a deficit of NPR 14.60 billion (USD 137.42 million) in the review period compared to a surplus of NPR 50.60 billion (USD 476.28 million) in the same period of previous year. On a positive note, during the review period, Foreign Direct Investment (FDI) inflow of NPR 14.41 billion (USD 135.64 million) was observed compared to transfer of NPR 11.07 billion (USD 104.19 million) during the same period last fiscal year.

Third Quarter Performance Analysis of Commercial Banks

As per the unaudited third quarter financial results of commercial banks for FY 2017/18, as shown in Table 7, the operating profit of commercial banks grew by 14.7% while the net profit increased by 15.5% compared to the corresponding figure of the previous fiscal year. Rastriya Banijya Bank was able to post the highest net profit of NPR 3.08 billion (USD 28.99 Million), followed by Nepal Investment bank at NPR 2.83 billion (USD 26.64 million) and Nabil Bank at NPR 2.79 billion (USD 26.26 million) at the end of this quarter. During the review period, the deposit mobilisation increased by 16.2% while credit mobilisation by the commercial banks increased by 21.1%. At the end of the third quarter, the average Non-Performing Loan (NPL)

of banks had decreased to 1.5% from 1.6% as compared to the corresponding period, and the average cost of funds of commercial banks increased to 6.7 % from 4.5% amidst tight liquidity. Similarly, the average base rate of commercial banks stood at 10.5% during the end of this quarter, the highest being 12.7% of the Agricultural Development Bank and the lowest being 6.2% of Rastriya Banijya Bank. As per the unaudited third quarter financial results of life insurance companies for FY 2017/18, as shown in Table 8, the Net Profit of life insurance companies grew by 20% while the Life Insurance Fund maintained by these companies increased by 24% compared to the corresponding figure of the previous fiscal year. Nepal Life Insurance was able to post the highest net profit of NPR 435.7 million (USD 4.1 million), followed by National Life Insurance at NPR 222 million (USD 2.9 million) and Metlife Nepal at NPR 188.9 million (USD 1.78 million) at the end of this quarter. During the review period, the Net Premium collected increased by 27% while the claims settled by the life insurance companies increased by 42.58%. Likewise, at the end of the third quarter, the outstanding claims of Life Insurance Companies had increased to NPR 1.66 billion (USD 15.63 million) as compared to NPR 1.11 billion (USD 10.44 million) the corresponding period, and the number of insured policies increased to 5.6 million from 4.9 million.

Third Quarter Performance Analysis of Non-Life Insurance Companies

As per the unaudited third quarter financial results of non-life insurance companies for FY 2017/18, as shown in Table 9, the Net Profit of non-life

insurance companies grew by 29% while the Insurance Fund maintained by these companies increased by 30% compared to the corresponding figure of the previous fiscal year. Rastriya Beema Company was able to post the highest net profit of NPR 461.3 million (USD 4.33 million), followed by Shikhar Insurance at NPR 310 million (USD 2.91 million) and Neco Insurance at NPR 210.3 million (USD 1.98 million) at the end of this quarter. During the review period, the Net Premium collected increased by 11.20% while the claims settled by the non-life insurance companies increased by 30.04%. At the end of the third quarter, the outstanding claims of non-life insurance companies had decreased to NPR 11.12 billion (USD 0.10 billion) as compared to NPR 13.25 billion (USD 0.12 billion) the corresponding period, and the number of insured policies increased to 1.17 million from 1.04 million.

Key Developments

Infrastructure Development Bank

The central bank has issued a Letter of Intent (LOI) to Emerging Nepal to establish an Infrastructure Development Bank. The government and the promoters will hold 10% while 50% shares respectively while 40% shares will be issued to the general public. Earlier, the central bank has issued ‘licensing policy for Infrastructure Development Bank 2017’. As per the new policy, initial capital of NPR 20 billion (USD 193.6 million) is required for such establishment. As per the policy, domestic investors could not invest in the proposed shares of the company by taking out a loan from any Bank and Financial Institutions (BFIs) while Non-Resident Nepalis (NRNs) would be allowed to make investments through remittances.

59


306.3

585.3

443.8

312.7

808.8

810.6

707.2

Nepal Bangladesh Bank

Everest Bank

Bank of Kathmandu Lumbini

520.2

216.9

340.1

225.9

800.1

1,393.7

22,560.1

Agriculture Dev. Bank

Total

804.2

858.8

Nepal Bank

Rastriya Banijya Bank

Public Sector Banks

Sanima Bank

121.2

806.3

Century Commercial Bank

181.2

11,273.7

850.5

497.7

597.6

190.8

737.6

693.4

Mega Bank

137.0

245.5

266.0

Civil Bank

800.1

800.0

Prabhu Bank

815.2

646.1

Sunrise Bank

NMB Bank

Janata Bank Nepal

563.5

803.3

Prime Commercial Bank

386.1

237.4

888.8

803.3

Global IME Bank

360.1

179.3

Citizens Bank International

822.1

801.2

Laxmi Bank

596.9

Kumari Bank

Siddhartha Bank

281.2

805.5

Machhapuchchhre Bank

301.8

467.9

803.1

NCC Bank

NIC Asia Bank

415.9

811.4

536.2

804.6

801.1

standard chartered bank

1,091.9

Himalayan Bank

1,064.5

Nepal Investment Bank

881.6

Reserve & Surplus

Nepal SBI Bank

804.3

Paid-up Capital

Nabil Bank

Bank 3 QTR

226,929.6

9,710.5

15,322.3

9,081.3

7,153.0

5,273.2

3,690.6

4,300.6

5,457.9

8,764.3

8,529.6

6,514.7

7,420.0

6,025.6

10,257.2

9,040.1

6,326.8

6,184.1

6,843.2

13,372.6

5,901.0

7,390.3

10,694.4

4,236.3

8,384.5

9,632.4

6,101.5

13,019.7

195,273.4

8,953.0

13,536.4

8,395.4

5,343.2

3,314.4

3,381.1

3,844.3

3,546.5

7,160.2

7,115.0

5,806.2

5,610.7

5,556.0

8,581.1

7,527.5

5,780.1

3,903.5

5,804.8

7,906.1

5,526.4

7,067.5

9,281.1

3,853.5

8,546.7

9,289.0

6,956.7

11,981.1

11,705.9

3 QTR

12,301.9

FY 16/17

FY 17/18

DEPOSIT

16.2

8.5

13.2

8.2

33.9

59.1

9.2

11.9

53.9

22.4

19.9

12.2

32.2

8.5

19.5

20.1

9.5

58.4

17.9

69.1

6.8

4.6

15.2

9.9

(1.9)

3.7

(12.3)

8.7

5.1

"% Change

199,261.7

9,489.7

11,280.7

7,970.5

6,432.2

5,002.7

3,492.4

4,128.6

5,116.9

7,307.0

7,401.3

5,794.3

6,653.5

5,582.0

8,906.9

7,988.0

5,869.9

5,684.9

6,221.1

10,996.3

5,212.7

6,725.2

8,817.3

4,207.5

7,405.2

8,545.6

4,640.6

11,886.0

10,502.7

3 QTR

FY 17/18

164,528.5

8,868.8

10,136.4

7,420.9

4,859.6

3,006.8

2,980.7

3,493.6

3,324.0

5,959.4

6,024.2

21.1

7.0

11.3

7.4

32.4

66.4

17.2

18.2

53.9

22.6

22.9

13.9

36.9

4,861.1 5,086.6

16.8

21.8

20.6

16.9

64.8

17.3

61.2

7.0

7.2

19.9

13.0

20.0

9.4

24.2

16.6

16.0

% Change

4,780.0

7,313.5

6,626.0

5,021.7

3,448.6

5,305.8

6,821.5

4,870.2

6,274.0

7,355.0

3,724.8

6,171.5

7,808.3

3,735.5

10,194.6

9,055.4

3 QTR

FY 16/17

LOANS AND ADVANCES

4,569.4

64.7

314.0

311.7

184.9

85.3

17.40

68.4

67.9

96.6

169.0

118.0

174.7

117.7

181.8

152.7

110.9

85.2

121.1

120.4

34.6

131.0

279.8

98.7

220.3

212.6

231.3

375.6

423.1

3 QTR

FY 17/18

3,985.2

181.5

181.1

220.0

143.6

47.1

3.00

80.2

45.8

117.2

116.9

119.4

125.3

88.7

196.3

118.4

73.6

50.8

133.1

132.1

8.6

124.9

235.5

110.4

175.0

239.7

161.3

345.7

410.0

3 QTR

FY 16/17

14.7

(64.4)

73.4

41.7

28.8

81.1

480.0

(14.7)

48.3

(17.6)

44.6

(1.2)

39.4

32.7

(7.4)

29.0

50.7

67.7

(9.0)

(8.9)

302.3

4.9

18.8

(10.6)

25.9

(11.3)

43.4

8.6

3.2

% Change

OPERATING PROFIT

3,625.0

178.8

308.5

256.7

120.5

63.0

35.0

52.4

57.5

86.7

141.0

94.2

125.8

100.9

144.4

122.5

80.2

70.5

81.5

92.7

54.3

93.0

180.3

71.0

137.9

161.1

150.9

283.8

279.9

3 QTR

FY 17/18

3,139.1

157.4

207.4

251.5

94.6

31.0

15.4

54.2

38.1

144.5

114.3

85.7

88.2

88.2

147.6

95.7

56.9

37.5

100.5

113.6

16.7

88.6

152.5

82.7

110.4

153.5

106.4

237.7

268.3

3 QTR

FY 16/17

NET PROFIT

15.5

13.6

48.7

2.1

27.4

103.2

127.3

(3.3)

50.9

(40.0)

23.4

9.9

42.6

14.4

(2.2)

28.0

40.9

88.0

(18.9)

(18.4)

225.1

5.0

18.2

(14.1)

24.9

5.0

41.8

19.4

4.3

% Change

1.5

3.5

2.9

2.9

0.2

0.8

3.7

1.0

2.0

3.9

1.1

1.5

1.1

1.5

1.3

1.3

1.2

1.2

0.4

0.2

4.0

1.8

0.2

1.8

0.1

1.2

0.2

0.8

1.1

3 QTR

FY 17/18

1.6

3.3

2.7

2.9

0.0

0.5

4.7

0.9

2.0

4.3

1.7

1.5

1.4

1.6

1.5

1.7

1.8

1.3

0.4

0.3

4.7

1.8

0.7

1.0

0.1

0.9

0.2

0.6

1.0

3 QTR

FY 16/17

NPL (%)

TABLE 7 THIRD QUARTER RESULTS OF COMMERCIAL BANKS-UNAUDITED-AS ON FY 2017-18 (FIGURES IN NPR TEN MILLION)

6.7

7.2

2.1

3.0

7.3

8.9

8.8

7.6

7.9

-

7.4

7.4

8.5

8.4

8.2

7.5

7.7

8.7

7.5

7.8

8.5

8.0

5.4

7.9

5.3

6.4

3.8

6.4

4.6

3 QTR

FY 17/18

4.5

5.6

1.3

1.9

4.7

7.4

6.3

5.5

5.1

-

4.6

5.2

5.0

7.1

5.4

4.8

6.8

5.3

4.3

5.3

5.8

4.7

4.2

4.9

3.0

3.3

2.6

4.6

2.3

3 QTR

FY 16/17

2.2

1.6

0.9

1.1

2.6

1.5

2.5

2.1

2.8

-

2.8

2.2

3.6

1.3

2.9

2.7

1.0

3.4

3.3

2.6

2.8

3.3

2.8

3.0

2.3

3.1

1.2

1.8

2.4

% Change

COST OF FUND (LCY)

10.5

12.7

6.2

7.1

10.6

12.1

12.4

11.0

11.7

10.2

10.9

11.3

11.1

11.5

11.7

11.3

11.4

11.6

11.1

11.5

12.0

10.8

8.2

11.6

9.9

9.4

7.2

9.1

7.3

3 QTR

FY 17/18

BASE RATE (%)


Total

808.5

-

53.8

Sagarmatha Insurance

Oriental Insurance

54.0

IME General Insurance

13.4

58.4

Premier Insurance

Everest Insurance

64.1

Siddhartha Insurnace

30.2

64.2

Prudential Insurance

26.7

68.8

Prabhu Insurance

United Insurance

78.4

Neco insurance

Rastriya Beema

88.0

-

Metlife Nepal

Lumbini General Insurance

18.1

Rastriya Beema Sansthan

102.7

59.4

Gurans Life Insurance

Himalayan General insurace

61.0

Prime Life Insurance

105.7

72.2

Surya life Insurance

Shikhar Insurnace

80.6

Asian Life Insurance

Paid-up Capital

133.5

Life Insurance Corporation (Nepal)

Insurance Company

165.6

National Life Insurance

1,030.0

439.7

Nepal Life Insurance

Total

Paid-up Capital

Insurance Company 3 QTR

16,244.0

1457.4

1403.96

386.3

598.4

322.6

1209.5

4058.5

2039.1

13,118.6

1262.7

1449.7

277.4

446.5

214.1

942.7

3189.17

1617.7

3718.8

3 QTR

4768.3

FY 16/17

FY 17/18

24%

15%

39%

34%

51%

28%

27%

26%

28%

% Change

LIFE INSURANCE FUND

2,942.7

253.14

233.82

88.8

145.51

104.02

191.93

695.4

394.4

1,069.6

3 QTR

FY 17/18

2,314.9

220.7

159.51

70.1

122.1

77.6

160.1

578.9

303.8

781.7

3 QTR

FY 16/17

NET PREMIUM

27%

15%

47%

27%

19%

34%

20%

20%

30%

37%

% Change

1,052.0

102.19

260.17

11.4

18.78

9.96

12.11

160.4

106.7

370.3

3 QTR

FY 17/18

679.7

82.27

124.4

6.85

21.34

6.45

12.44

118.72

112.69

194.57

3 QTR

FY 16/17

55%

24%

109%

66%

-12%

54%

-3%

35%

-5%

90%

% Change

CLAIM SETTLEMENT (NET)

166.2

26.4

19.34

0.6

1.8

0.8

2.2

3.2

17.0

94.9

3 QTR

FY 17/18

111.0

17.0

18.44

0.7

0.8

0.7

1.3

2.1

12.0

58.0

3 QTR

FY 16/17

50%

56%

5%

-11%

117%

13%

69%

52%

42%

64%

% Change

OUTSTANDING CLAIM

5,655,980

706,979

204,064

1,586,642

325,154

205,346

707,187

808,029

1,112,579

3 QTR

FY 17/18

433.7

(2.9)

10.5

202.5

(0.3)

38.8

11.5

70.5

12.1

10.8

9.5

30.2

10.7

11.7

18.2

Reserve & Surplus

654.0

49.1

19.1

130.7

24.1

48.9

13.5

43.42

50.3

41.8

39.6

39.0

39.8

35.65

503.0

43.7

15.2

108.9

18.2

39.2

8.3

29.1

37.3

31.4

30.1

24.5

29.6

28.47

59.2

3 QTR

3 QTR

79.0

FY 16/17

FY 17/18

INSURANCE FUND

30%

12%

25%

20%

33%

25%

62%

49%

35%

33%

31%

59%

35%

25%

34%

% Change

664.1

48.8

7.8

18.0

24.8

65.8

28.1

62.1

65.7

36.2

39.4

72.1

55.0

17.5

122.9

3 QTR

FY 17/18

597.2

52.7

8.4

16.4

28.5

51.8

23.7

57.3

53.6

25.6

36.6

58.1

55.1

15.2

114.2

3 QTR

FY 16/17

NET PREMIUM

11%

-7%

-6%

9%

-13%

27%

18%

8%

23%

41%

8%

24%

0%

15%

8%

% Change

311.3

37.3

2.6

4.7

12.4

28.4

9.1

29.9

31.8

23.3

12.0

28.5

28.2

7.4

55.7

3 QTR

FY 17/18

239.4

30.0

3.0

7.5

8.9

26.9

3.3

18.0

23.0

27.8

14.4

14.0

20.5

5.9

36.1

3 QTR

FY 16/17

CLAIMS PAID

30%

24%

-13%

-38%

39%

6%

176%

66%

38%

-16%

-16%

103%

38%

26%

54%

% Change

1,112.8

77.44

26.34

5.7

80.79

71.37

20.14

108.06

58.51

69.65

11.26

35.32

45.19

429.91

73.12

3 QTR

FY 17/18

1,325.5

56.67

28.1

8.5

75.92

158.09

9.35

169.56

61.1

72.02

14.57

32.17

30.41

544.41

64.58

3 QTR

FY 16/17

-16%

37%

-6%

-33%

6%

-55%

115%

-36%

-4%

-3%

-23%

10%

49%

-21%

13%

% Change

OUTSTANDING CLAIM

13%

-5%

32%

9%

-6%

-6%

5%

115%

9%

% Change

1,174,292

16,536

35,596

11,900

51,266

100,125

50,016

146,632

84,895

100,103

52,513

197,151

93,190

18,767

215,602

3 QTR

FY 17/18

1,042,197

16,240

12,972

18,726

35,664

63,472

40,117

134,206

91,308

82,409

56,812

150,164

117,160

13,495

209,452

3 QTR

FY 16/17

13%

2%

174%

-36%

44%

58%

25%

9%

-7%

21%

-8%

31%

-20%

39%

3%

% Change

NO OF INSURED POLICIES

4,986,654

741,710

154,077

1,455,399

345,513

217,986

671,219

376,108

1,024,642

3 QTR

FY 16/17

NO OF INSURED POLICIES

TABLE 9 THIRD QUARTER RESULTS OF NON-LIFE INSURANCE-UNAUDITED-AS ON FY 2017-18 (FIGURES IN NPR TEN MILLION)

765.1

147.5

16.47

20.8

94.8

35.3

22.3

36.1

43.8

348.0

Reserve & Surplus

TABLE 8 THIRD QUARTER RESULTS LIFE-INSURANCE COMPANIES-UNAUDITED-AS ON FY 2017-18 (FIGURES IN NPR TEN MILLION)

224.4

12.6

3.0

46.1

9.2

17.0

8.2

13.4

18.0

12.2

13.1

21.0

14.5

5.1

31.0

3 QTR

FY 17/18

127.5

18.89

1.48

4.0

14.31

9.77

3.32

10.0

22.2

43.6

3 QTR

FY 17/18

174.0

20.4

2.1

26.1

4.5

14.4

6.2

10.3

14.0

10.2

10.6

12.9

11.6

4.0

26.6

3 QTR

FY 16/17

NET PROFIT

105.9

18.6

1.23

2.9

10.7

6.0

3.0

5.0

17.5

41.0

3 QTR

FY 16/17

NET PROFIT

29%

-38%

44%

77%

104%

19%

33%

30%

29%

20%

23%

63%

25%

27%

16%

% Change

20%

1%

20%

39%

33%

62%

12%

100%

27%

6%

% Change


Provision in the Budget for FY 2018-19 Banking l To

increase the regulatory capacity, Nepal Rastra Bank Act will be timely amended. l Financial services will be extended, and Nepali citizens will have easy access to them. l Campaign to encourage people to open Bank account will be launched within a year. l Collection of government revenue and payment of expenditure through the electronic system will be arranged from the next year. l Microfinance companies and financial cooperatives will be brought under Credit Information Centre. Likewise, foreign employment credit, educated unemployment credit, education credit and all other credits without collateral will be covered under this net. Defaulters will be prevented from receiving any citizenry facilities. l A system will be put in place to increase the limit of mandatory insurance of the deposit of the small depositors and credit guarantee of

small non-collateralised credits NPR 300,000 (USD 2,823) and NPR 1,000,000 (USD 9,412) respectively. l Credit rating assessment of Nepal will get conducted with the objectives of easing the process of foreign investment and credit placement. l Regulatory authorities will be arranged for the effective regulation of Citizen Investment Fund, Employment Provident Fund and Deposit and Credit Guarantee Funds. l Postal Bank will be de-established, and arrangements will be made to hand over the funds along with accounts to the commercial banks. l Programmes based on grants and credits operated by Poverty Alleviation Fund, Rural SelfReliance Fund and Youth Employment Fund will be managed in a coordinated manner. The amounts remained unused in various government funds will be utilised for capital formation. l The Infrastructure Development Bank, which is in the process of establishment, will be brought into operation with the joint effort of

the government and private sector. l Policy measures will be introduced to make financial sector invest in the infrastructure through the instruments of blended financing. Insurance l To

increase the regulatory capacity, relevant and timely amendment of Insurance Act would be done. l All the operating life and non-life insurance companies will have to mandatorily reinsure at least 20% of their insurance policies with Nepal Reinsurance Company. l All insurance companies will be required to extend the limit of micro-insurance transaction up to 10% of their total insurance transaction at minimum within next two years. l The amount of life insurance of public sector employees has been increased to NPR 200 thousand. Its premium will be borne equally by the employee and the government. l Increased the limit of life insurance premium up to NPR 25,00O (USD 235) allowable for the deduction in income tax.

“ OUTLOOK

The banking sector continued to face tight liquidity with some signs of relief during the review period. Nonetheless, the sector will continue to struggle as fundamental issues are still prevalent. During the first nine months of the current FY, hire purchase loan increased by 10%, overdraft loan increased by 14% while the real estate loan increased by 13.3%. These growth figures indicate aggressive lending strategy followed by BFIs to meet up their earning targets amidst increased capital. The commercial banks have started to look for international funds as sluggish deposit growth has directly limited their capacity to lend large projects. Few large commercial banks have already signed loan mandates with the World Bank’s private arm International Finance Corporation (IFC). As per the central bank’s directive, such funds would need to be diverted towards the priority sector. The central bank should play a key role to facilitate these funds as international funds are crucial to support large and long-term infrastructure projects which are essential to support governments plan to expedite infrastructure development. The government has planned to establish a regulatory body to regulate non-banking institutions such as Employee Provident Fund, Citizens Investment Trust, and Deposit and Credit Guarantee Corporation. The establishment of such entity will further strengthen the financial sector as these entities are crucial for the overall stability of the financial sector. In terms of the insurance sector, as the deadline to meet the new capital requirement approach nears many insurance companies are yet to meet the new capital requirement. As per the new mandatory requirement, life insurance companies need to have a paid up capital of NPR 2 billion (USD 18.82 million) while non-life insurance companies need to have a paid-up capital of NPR 1 billion (USD 9.41 million) by the end of FY 2017/18. With optimistic provisions in the budget and entry of new insurance companies, the insurance market is further going to deepen. As the government has come out with fiscal policy, now the ball is in the central bank’s court to come out with a balanced monetary policy that can support the government’s plans and strategies.


NEFPORT ISSUE 33 – JUNE 2018

CAPITAL MARKET CAPITAL MARKET The secondary market went down by 4.94% to close at 1322.27 points during the review period (9 February 2018 to 30 May 2018).The NEPSE index went up to 1,438.49 points on 22 April, the highest in the past three months, nonetheless the market could not withstand the selling pressure thus rapidly decline by over 100 points reaching 1,322.27 points by mid-May. Secondary Market:

During the review period, the Nepal Stock Exchange (NEPSE) benchmark index decreased by 4.94% (68.76 points) to close below long-term support of 1400 points at 1322.27 points. At the end of the review period, the total market capitalisation

had reached NPR 1,559 billion (USD 14.67 billion) while the total floated market capitalisation was NPR 525 billion (USD 4.94 billion). As shown in Table 10, during the review period, all the sub-indices except micro- finance index (+6.79)

ended in the red zone. The finance sub-index (-8.63 %) was the biggest loser followed by the hydropower (-8.61%), Commercial bank (-7.71%), manufacturing & processing (-4.66%), hotel (-4.59%) development bank (-2.92%), Insurance (-1.58%) and other index (-1.46%).

Table 10: Key Indicators Indicators

9 Feb-18

30 May-18

% change

NEPSE Index

1391.03

1322.27

-4.94%

Commercial Bank Index

1212.05

1118.57

-7.71%

Development Bank Index

1572.31

1526.31

-2.92%

707.78

646.64

-8.63%

Insurance Index

7066.46

6954.75

-1.58%

Hydropower Index

1780.32

1627.00

-8.61%

Manufacturing & Processing Index

2450.48

2336.18

-4.66%

Micro-Finance Index

1661.72

1774.64

6.79%

Hotel Index

2083.85

1988.18

-4.59%

Others Index

761.65

750.52

-1.46%

Finance Index

Source: NEPSE

Figure 26: NEPSE Movement Index 1450

Nepse Index

1400 1350 1300 1250 1200 1150 2/8/2018 3/2/2018 3/24/2018 4/15/2018 5/7/2018 5/29/2018 Source: NEPSE

63


64

DOCKING NEPAL’S ECONOMIC ANALYSIS

Primary Market:

On the public issue front, the market witnessed Initial Public Offerings (IPOs) of numerous companies during the review period. l Rairang Hydropower Development had issued IPO of 8,40,000 units of shares at NPR 100 per share. ICRA Nepal has assigned grade 4 to this issue, indicating below average fundamentals. l Likewise, IPO of Aarambha Micro Finance (294,000 units) and Nepal Sewa Micro Finance (180,000 units) was also issued during the period. l Meanwhile, Securities Board of Nepal (SEBON) has approved the primary issuance of following companies; l Shuvam Power Limited issued IPO of 2,00,000 units at NPR 100 per share. The credit rating agency, ICRA Nepal, has assigned grade 5 rating to this issue, indicating poor fundamentals of the company. l NADEP Laghubitta Sanstha has issued IPO of 480,000 unit shares at par value of NPR 100. The current paid up capital of the company stands at NPR 112 million (USD 1.05 million). ICRA Nepal has assigned grade 4+ to this issue, indicating below average fundamentals.

Key Developments SEBON approves margin trading system: SEBON has approved the

working guideline on margin trading

submitted by NEPSE. Under the new guideline, investors will be able to buy shares by borrowing money against stocks as collateral. To be a part of the margin trading system, investors will have to open a margin account with the stock brokerage firm. According to the new guideline, the stock brokering firm with net assets of NPR 50 million (USD 0.47 million) can offer margin trading service to investors. Stockbrokers can issue margin loan only up to 50% of the value shares based on the 180-day average price or the prevailing market price, whichever is lower. Meanwhile, brokerage firms are free to set service charges and interest charges. SEBON Celebrates Silver Jubilee:

SEBON celebrated its silver jubilee by holding a two-day Capital Market Expo from 9 to 10 May, mainly offering technical sessions related to the capital market, issues related to merchant bankers, brokering companies and prospects of development and challenges of the capital market. Fully automated trading around the corner: SEBON has been working

in the final stage of software retesting to roll out the fully automated stock trading. SEBON had inaugurated semi-automated trading system from the New Year 2075 via email, SMS and mobile app and is now ready to introduce full-fledged online trading by July. The soon-to-be-released system has a special provision to

address the requirement of a seller who happens to place sell order of more shares that s/he actually possesses, i.e. the provision of Auction Market. Another new concept to the market would be Trade Guarantee Fund, where payment is not made for the orders of some shares then a loan will be issued from Trade Guarantee Fund which would later be settled between the stock broker and the investor. Apart from selling and purchasing shares, the investors can also view the market depth, information sent from NEPSE, details of transaction history and share portfolio. Provision in the Budget for FY 2018/19 l

To strengthen the regulator, timely amendment of Securities Act will be performed. l All productive sector companies having capital of one billion or more will be required to convert them into public limited companies and get listed with Stock Exchange. l New institutions like private equity, venture fund, and hedge fund will be introduced in to the capital market. Credit rating assessment of Nepal will get conducted with the objectives of easing the process of foreign investment and credit placement. l Capital Gain Tax (CGT) for individual’s investors has increased to 7.5% from 5%, while the CGT for institutional investors remain unchanged at 10%.


NEFPORT ISSUE 33 – JUNE 2018

“ OUTLOOK

The budget for the FY 2018/19 has made it mandatory to list private companies from the real sector with investment above NPR 1 billion (USD 9.4 million ) in the secondary market. Since almost 85% of listed companies are from the financial sector, the move can attract real sector companies into the market and further deepen the market. Last year, the government had planned to encourage manufacturing companies to enter into the capital market which was supported by new bylaws from SEBON. Few large cement manufacturing companies are in the pipeline to issue shares to the general public soon. Likewise, in the previous year’s fiscal policy, the government had said that Stock exchange market would be made transparent and fully automated, as per the latest development, the fully automated trading is likely to start from the new FY 2018/19. The government has been planning to include Private equity, venture capital and hedge funds under the capital market ecosystem for some time now, nonetheless, given that the required regulations are still being drafted, the regulators should expedite the process to bring in necessary regulations and directives to ensure higher contribution of these non-bank entities which are essential for the organic growth of the market. The new Know Your Customer (KYC) requirement for investors is likely to impact the market volume further. Moreover, the tight liquidity in the banking channel amidst the large number of upcoming IPOs in the near future is going to affect daily market volume at the secondary market further. For instance, Further Public Offering (FPO) of Nepal Bank, NMB Bank and IPO of much awaited Upper Tamakoshi Hydropower (26.4 million units) are in the pipeline. Nonetheless, on a positive note, despite various speculations, Value Added Tax (VAT) will not be levied on stock broker’s commission, so the decision is likely to have a positive impact on market turnover in the days ahead.

65


5 NEFPORT ISSUE 33 – JUNE 2018

INSURANCE SPECIAL

67


68

DOCKING NEPAL’S ECONOMIC ANALYSIS

INTRODUCTION After years of moderate growth, Nepal’s Insurance sector is now seemingly headed for growth by leaps and bounds. The interest of general public towards insurance over the last few years has grown as more Nepalis are looking to get insured. With new entries and products, the growth of the risk-mitigation business is likely to accelerate over the next few years.

insurance industry took place during the 1990s after the government reformed the financial sector and liberalised the economy. These new policies led to the growth of insurance business in the private sector. Beema Samiti,(Insurance Board) an autonomous body, was established to develop, systemise, regularise and regulate the insurance business of Nepal under Insurance Act, 1992.

Evolution

The business of insurance is thriving, and insurers are gradually reaching out to many new parts of the country that previously remained out of the radar of the insurance sector. Presently, there are 37 insurance companies, 19 in life and 17 in non-life areas with 1 re-insurance company, operating with more than 400 branches across the country.

The development of insurance business is closely related to the beginning of industrialisation in Nepal around 1940. Insurance needs in Nepal were mostly met by Indian companies until the establishment of the Nepal Insurance and Transport Company, later renamed as the Nepal Insurance Company in 1947. The expansion of the Nepali Life Insurance Companies

Non- Life Insurance Companies

State owned

State owned

1. Rastriya Beema Sansthan

1. Rastriya Beema Company Ltd

Private Sector

Private Sector

2. National Life Insurance

2. Everest Insurance

3. Nepal Life Insurance

3. Himalayan General Insurance

4. Surya Life Insurance

4. Prudential Insurance

5. Prime Life Insurance

5. Neco Insurance

6. Asian Life Insurance

6. Premier Insurance

7.

7. Lumbini General Insurance

8. Gurans Life Insurance

8. IME General Insurance

9. Citizen Life insurance

9. United Insurance

10. Star Life insurance

10. Shikhar Insurance

11. Sun Nepal Life Insurance

11. Prabhu Insurance

12. Sanima Life Insurance

12. Siddhartha Insurance

13. Reliance Life Insurance

13. Nepal Insurance Company

14. Reliable Life Insurance

14. NLG Insurance Co. Ltd

15. IME Life Insurance

Foreign

16. Mahalaxmi Life Insurance

15. Oriental Insurance

17. Jyoti Life Insurance

Joint Venture

18. Union Life Insurance

16. Sagarmatha Insurance

Foreign

17. National Insurance CompanyLimited, Nepal (NICL)

19. Metlife Insurance

Joint Venture

Re-insurance Company

20. LIC Nepal

1. Nepal Re-insurance Co. Ltd.


NEFPORT ISSUE 33 – JUNE 2018

Insurance Products

Insurance companies in Nepal have various types of insurance products for Nepali policyholders. Life insurers have been selling a range of policies such as: • whole life policy, • term life insurance, • endowment plans, • money back plans, • accident and health related policies, • children insurance plans, • Group insurance/employee benefit.

• Insurance of Government/ Public Property and

Infrastructure

Emerging Trends in Insurance • E-insurance

Besides these, companies are also seen launching new products to attract more Nepalis into insurance. NLIC, for instance, introduced the one-year ‘Smart Life Insurance’ scheme. Under this scheme, the company will provide Rs 1 million to the nominees if a policyholder dies during the policy period. The insured are required to deposit Rs 10 per day. Non-life insurers, also have various products in their portfolio. As per the Insurance Regulation, 1993, non-life insurance companies are currently selling policies in the following: • Fire Insurance, • Marine Insurance, • Aviation Insurance, • Motor Insurance, • Engineering and Contractors All Risks Insurance • Miscellaneous Insurance (covers areas including accidents of individuals and groups, transit, third party liability, industrial accidents, damages to households, livestock, crops and medicine.) New Frontiers in Insurance Sector • • •

Agriculture Insurance Micro Insurance Migrant Worker Insurance

The business of insurance is all about providing practical solutions to the clients using latest technologies. While the concept of e-insurance has gained prominence in developed and many emerging economies, Nepal lags behind in expanding the insurance business through digital means. Nevertheless, the digital gap in insurance innovation has narrowed with the launch of the portal www.ebeema.com. Introduced in April 2016, the insurance portal enables users to compare and purchase insurance policies being offered by a number of insurers in the country. Its portfolio is composed of a variety of insurance schemes including endowment, money back, home, health, automobile, travel, child, whole life, term life, pension and education. Users of the policies can track their policies, receive reminders for expiration and payments, schedule medical check-ups and physical surveys and make claims for settlement.

• Bankaassurance

Introduced in Nepal in 2006, Bankassurance has remained a low profile insurance service due to the lack of interest among the customers, banks and insurance companies. However, with more banks and insurance companies joining hands to provide insurance services to their clients Bankassurance has been speeding up over the last few years in Nepal. It is an arrangement in which banks and insurers enter into a partnership to sell insurance products to the client base of the banks. The Insurance Board is also said to be working to introduce the Bankassurance Policy whereby customers can receive insurance services through all branches of banks throughout the country.

69


70

DOCKING NEPAL’S ECONOMIC ANALYSIS

CHIRANJIBI CHAPAGAIN, CHAIRMAN, INSURANCE BOARD FOREWORD Volume of Insurance has definitely grown in past three years. But it is difficult to segregate the data between regular growth and the growth following the earthquakes. However, since many households still do not have insurance, the anticipated growth in the personal line of Insurance Business has not been achieved. Over the last three years, the sector has managed to achieve average growth of 22%, with 25% of growth in life and 19% in non-life. The Insurance industry is facing major challenges including lack of literacy amongst the general people, lack of trained and qualified human resource, and lack of reinsurance facility. Besides, as per the constitution of Nepal 2072, the operation and management of insurance business are now governed by the federal and provincial government. Core insurance functions will be implemented by the central level and some supporting functions, such as inspection and supervision of insurers, licensing of the insurance agent and publication of provincial insurance statistics will be carried out by provincial level . Meanwhile, the draft of the new Insurance Act has been finalised and forwarded to the Ministry of law. With the endorsement of the new Act, insurance services will be expanded in all seven provinces of the Country. In coming years, more conducive environment for the development of insurance sector is anticipated. For instance: implementation of the Labor Act, which includes compulsory health and personal accident insurance for employee, will help to boost the insurance business. After the commencement of the new Insurance Act, the professional health insurance will be launched by insurer with the help of third party administrator (TPA) on cashless basis. The development of new products in line with customers’ desire and affordability will enhance the insurance market. Similarly, the implementation of the

Act proposed by the International Association of Insurance Supervisors (IAIS) will make the insurance business more disciplined and insurance board more autonomous. Following actions need to be carried out immediately in coordination with the Government of Nepal and other stakeholders for the development of insurance sector: l Promotion of Insurance Awareness: Beema Samiti has recently initiated the following activities a. Interaction with the Municipal & village level government in various Municipalities of provinces. b. Briefing school level students on need of Insurance. c. Developing school, college and university curriculums for Insurance studies. l Promotion of Microinsurance. a. The government needs to issue certificate or identity cards for poor persons—people with low income level or living below the poverty line. b. The government to arrange for 75% subsidy to people from low income group and 100% to people living below poverty line to promote Microinsurance and make insurance inclusive. l

Capacity development of Insurance Personnel Beema Samiti has initiated the move to establish separate “Insurance Training Centre” in near future. Initially, training will be given to agents, surveyors and recruits in the insurance sectors as well as refresher courses to the senior staff of Insurance Companies.

Considering the current status of insurance market, insurers (life or nonlife) have been asked to meet their respective capital requirements (NPR 2 billion for life and NPR 1 billion for non-life) by the end of this fiscal year. All insurers have submitted their capital plan to Beema Samiti. Most of the insurers have already begun the process by taking measures such distributing bonus and right shares


NEFPORT ISSUE 33 – JUNE 2018

whereas others are still trying to proceed towards the direction. Mergers and Acquisition directive is already in place. If some company opts to go for the same, they can do so. However, we need to wait till the stipulated final date, i.e, 15 July 2018, to think of the alternatives. Beema Samiti has already issued two life and five nonlife micro insurance product. Micro life insurance is getting momentum with the distribution by various micro finance and cooperatives. However, property insurance seems to be lagging behind due to various reasons. Non-life Insurers have recently created a pool

amongst themselves to conduct microinsurance in more integrated way. The business of the pool is gradually picking up. The UK Aid Louis Berger, locally known as ‘Sakchyam’, is providing some technical co-operation and administration cost subsidy to gear up the performance of microinsurance pool. Beema Samiti is also constantly monitoring the development and pressing the pool for speedy growth of business. However, government subsidy like in Agricultural Insurance will be the best tool for encouraging micro insurance and taking it to the grass root. Similarly there is a huge prospect of Bank assurance and E-insurance.

71


72

DOCKING NEPAL’S ECONOMIC ANALYSIS

MAHENDRA KRISHNA SHRESTHA, CHAIRMAN, HIMALAYAN GENERAL INSURANCE INSURANCE INDUSTRY IN NEPAL - AN OVERVIEW Designed as a risk sharing and risk transfer mechanism, insurance is an industry that grows with economic growth and market maturity—as asset values increases and large projects with huge risk exposure highlight the need for risk sharing. Insurance is defined as a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company (insurer) pools clients’ risks to make payments more affordable for the policyholder (insured), i.e. the premiums of many pays for the losses of few. The insurance industry is broadly divided into two categories: Life and Non-Life (General). In general insurance, compensation usually is proportionate to the loss incurred, whereas in life insurance usually a fixed sum is paid. In recent years several factors have contributed to growth in the Nepali insurance industry like themandatory foreign employment insurance, third-party liability for vehicles and increased awareness following the earthquake. However, it is still a relatively young industry with huge potentials. Several government initiatives to extend the reach of insurance protectionis being undertaken such as the National Health Insurance Scheme—providing upto Rs 50,000 coverage for a family of five for a premium of Rs 2500. Agriculture / Livestock Insurance—the government provides 75% of premium as subsidy and the farmer pays only 25% of the premium. Furthermore, VAT has also been waived on agriculture/livestock insurance. In addition to the government’s efforts, the following factors will also play a catalytic role in fuelling more rapid growth in the days to come:

• New licenses for12Life Insurance Companies and

3 Non-Life Companies have been issued this year bringing the total number of insurance companies to 40—20 Life and 20 Non-Life. The division of federal states, and thus the increased economic activity across the nation will lead to increased insurable assets and increased risk that needs to be shared. Government’s focus on Micro Insurance Sector.

Beema Samiti – The Insurance Regulatory Authority of Nepal

The Beema Samiti is the Insurance Regulatory Authority of Nepal and only Insurance companies duly licensed by it can transact Insurance business in the country. Nepal is also a tariff controlled market which means that the product offering, benefits, and pricing are set by the regulatory authority for most classes of business. In other words the policy wordings, as well as the premiums are determined by the Beema Samiti and all companies writing that particular class must issue the same policy and charge the same rate. In the initial stages of the industry, this helps provide widespread basic coverage. However, this feature of the market also accounts for the lack of diversity in pricing and benefit offerings for core insurance products. Non-tariff products on the non-life side include health, aviation, contractors all risk, among others. In general, globally, as the market matures, i.e. high insurance penetration and high value risks, it begins to demand more sophisticated insurance products which drive innovation in the sector.


NEFPORT ISSUE 33 – JUNE 2018

MARKET SIZE Life Insurance

Non-life Insurance Overview

Paid Up Capital Requirement: NPR 2Billion

Paid Up Capital Requirement: NPR 1 Billion

20 Companies

17 Companies (expected to become 20) Product Examples

Term Life

Property: including natural calamities, fire, riot, malicious damage

Endowment

Motor

Annuity

Marine: transport

Foreign Employment

Contractors All Risk: construction

Health Child Education Endowment

Agriculture: crop, livestock etc. Micro Insurance Others: travel, health, money, fidelity, burglary etc.

Although the growth potential is large, at present, the insurance industry contributes to less than 2.5% of Nepal’s GDP.

to share risk with Nepal RE which implies that the country can now retain more risk and this also reduces the outflow of foreign exchange from the industry.

There will be in near future 20 companies worth NPR 1 billion each on Non-Life and 20 companies worth NPR 2 billion each on Life. Visibly, the market size is large. In addition, the re-insurance company of Nepal has a capital of NPR 5 billion which is expected to grow to NPR 15 billion in the near future.

LOOKING AHEAD- CHALLENGES AND OPPORTUNITIES IN THE SECTOR

NEPAL REINSURANCE

Insurance companies are often also referred as ‘direct insurers’ as they directly issue policies to their clients who are either individuals or entities, and buy insurance for their protection from Reinsurance companies who function solely on a b2b model. When taking on risks on behalf of clients, insurance companies retain a small percentage of the risk, depending on their capital base, and reinsure the rest. Reinsurance companies are the insurers of Insurance companies. Until 2014, Nepal had no reinsurance companies and the insurance companies primarily reinsured their risks with companies in India, Singapore and Europe. In 2014, the Nepal Market Pool for Terrorism, established in 2003, was formally incorporated to become Nepal Re, Nepal’s first Re-insurance company. It is the first PPP Model established institution in the industry, with the Government of Nepal and private insurance companies being equity stakeholders. With this development, local insurance companies are able

Rural And Micro Insurance: The Key To Increasing Reach

Over the next few years, Health, Micro, and Agriculture are areas poised for massive growthin insurance penetration in Nepal. These are also the sectors that challenge our current working procedures and approach to insurance provision. The challenge of reaching far-flung and small budget customers in a way that is fast, affordable and secure will, if handled with a proactive spirit, move the industry forward and drive innovation across the board. Accessing hard to reach and low-income areas, for instance, raise challenges for verification and procedural requirements that must be fulfilled before a policy can be issued as well as the technology required to provide secure coverage cheaply is also not available. We need to evolve in two areas in particular to facilitate this growth; legislation and technology—driving the legislative change and technological advancements necessary to reach large numbers of people quickly and affordably. These are both current constraints and areas of opportunity for the industry to move to the next level of maturity and growth.

73


74

DOCKING NEPAL’S ECONOMIC ANALYSIS

NIRMAL KAJEE SHRESTHA, GENERAL MANAGER, METLIFE NEPALI INSURANCE MARKET: CHALLENGES AND OPPORTUNITIES MetLife has been operating in Nepal since 2001. It was initially known as Alico, before MetLife acquired that business in 2010. As a 150 year-old company with operations in more than 40 countries, MetLife brings a significant amount of global expertise to Nepal’s flourishing insurance market. As the only global life insurer in Nepal, we provide a broad range of products covering life, accident, health, credit and group insurance (employee benefits) through multiple channels, including Agency, Bancassurance and Direct. MetLife has always been a pioneer in Nepal’s insurance market, bringing new protection solutions like micro insurance and universal life products to new distribution channels like bancassurance. MetLife has also been a first-mover to address emerging needs in the market, offering femalecentric Critical Illness products and Employee Benefits for corporates.

Challenges and Opportunities

In case of Nepal, insurance penetration rate is below 10% due to lack of awareness and understanding of how insurance products work. Many people only think of insurance as an investment tool and ignore the protection benefits that help them build financial resilience and protect their wealth. More awareness about the risks people face every day as well as the protection benefits that insurance offers is necessary. There are many untapped opportunities in this sector that need to be explored. In this context, using customer insights, MetLife identified a protection deficiency among people suffering from serious illnesses like cancer. This protection gap was especially pronounced among women, who did not have coverage to financially protect themselves against common cancers like breast and cervical cancer. In response to this need, MetLife

launched LifeCare which is a term insurance policy that provides comprehensive financial protection against loss of life, unanticipated incidents and diagnosis of 24 serious diseases. The first-of-its-kind insurance plan in Nepal offers packages specifically designed for women, as well as a general package for all. The other challenge is the limited talent pool, especially for the early entrants to find people with the right experience and technical expertise, given the size and maturity of insurance industry in Nepal. This will however change over time as the industry grows and insurance gains momentum. For any industry to grow, technology is the key factor. Metlife is coming with a new technology for smoother customer onboarding, which is due to launch later this year, developed in partnership with our Global Digital Team that will enable our customers to purchase products, access their account and perform a variety of other tasks via their mobile device anytime, anywhere. This will guide a paperless sales procedure to achieve MetLife’s core strategic objective of “Digital and Simplified”. Lately, bancassurance has been an effective channel to make people aware of insurance through their banks. In 2006 MetLife was the first company to introduce the bancassurance model to Nepal to diversify our distribution. We refreshed our bancassurance business in 2015, highlighting the effectiveness of this channel by increasing our market share. MetLife’s success as a first mover in bancassurance has led to many other life insurers focusing on building their bank channels. Digital is the way to go forward and MetLife is already on its way to simplifying and digitizing most of our processes. We have already digitized all our policies and we will be doing that for the customer onboarding as well. We are also in the process of providing e-payment facility to our customers.


NEFPORT ISSUE 33 – JUNE 2018

As a future-focused company, MetLife is also investing heavily in innovation and has established one of the most vibrant and disciplined innovation ecosystems in the industry, which includes an Asian innovation centre (LumenLab), relationships with venture capital firms, leading universities and a vast array of insurtech startups. Globally, MetLife is in the midst of a digital transformation to become easier and faster to do business with. For example, in Nepal, we are launching an industry-first digital solution to support seamless customer onboarding. With this unique wealth of global experience and our commitment to continuous innovation, we are well-placed as a trusted partner who can help our customers navigate through life’s twists and turns.

“ OUTLOOK

Regarding the financial inclusion, Metlife has been working in the micro insurance in Nepal since 2009 facilitating rural credit insurance to borrowers of micro finance and cooperatives. Under this facility, the borrowers do not need to worry about repayment of loan in case any unfortunate event happens to them. MetLife pays off the outstanding loan and family gets additional financial support. So far, Metlife paid more than 8,000 death claims to date and we are well on our way to meet the regulatory requirement of having 10% premium contribution from Micro Insurance.

Nepal’s advancing insurance sector will require good collaboration between regulators, the government and insurance companies. Both government and Beema Samiti have a very important role in the development of the insurance sector in providing a regulatory framework and economic policies that support sustainable growth. It has a very important role in ensuring level-playing field and healthy competition amongst the companies along with protection of consumers’ rights. The development of this sector stands to benefit the people of Nepal as they become better able to secure their financial future in partnership with insurance companies. That in turn will raise living standards and support economic growth, as people would require less “precautionary savings” to guard against unforeseen events and can consume more. And by creating a sound regulatory environment that supports the growth of the industry, the government will also create more demand by insurance companies for long-term investments, especially sovereign debt, which ultimately strengthens government finances. We all stand to benefit by collaborating closely to grow the industry responsibly.

75


76

DOCKING NEPAL’S ECONOMIC ANALYSIS

VIJAYA BAHADUR SHAH, CEO, NEPAL INSURANCE COMPANY LIMITED NEPALI INSURANCE MARKET: PROSPECT AND OUTLOOK The massive 2015 Earthquakes that struck Nepal made the denizensaware of the power of the insurance. After the earthquake, people were encouraged to take up insurance policies but it did not result to transferring of risks via insurance. In other words, Nepali insurance industry did not grow as expected. Also, awareness regarding insurance did not spread as anticipated. Hence, insurance companies did not see a pull in terms of demand for the insurance products. Despite the gloomy scenario with regard to limited insurance products, the insurance industry has grown by 100% over the period of five years. If we compare the figures for life and non-life insurance, life insurance companies have fared slightly better than nonlife companies. The growth rate of the insurance industry is greater than that of the total economy. The industry is growing at a rate of 20% per annum. There has been a sizeable capital investment in the insurance sector. Although, the growth is impressive, only around 10% of the total population are beneficiaries of the insurance sector. The biggest challenge for the insurance industry is the entrepreneurship development. The insurance sector will face a resource deficit scenario unless entrepreneurship gets developed and is commercially viable. Players in the insurance industry shouldmake people understand the value of insurance because it will make the poor rich, and the rich even richer. Costumers should be well aware that insurance services will leverage risk associated with entrepreneurship. Insurance has to be a way of life. People have to develop a sense of vulnerability in the absence of insurance. Natural calamities like floods and earthquakes are also one of the major challenges along withtechnological advancement. Awareness regarding insurance products can spread if people become technology friendly. Most

insurance companies today use software technologies developed and run globally. However, most companies do not have capable human resource to tackle potential problems and breakdowns of the complex software technologies.Considering a NPR 250 million budget in the past, Nepal Insurance had an option to either invest in setting up and running an office or buying a world-class software. Nepal Insurance opted to set up an office and used the common cut-and-paste software easily available in the market. Insurance companies were unable to invest in good software due to various constraints. Now most companies have embraced technological advancement and not only avoid traditional insurance products but also introduce new products so that even the rural populace has access to it. Insurance Board made it mandatory for insurance companies to maintain a paid-up capital of NPR 1 billion. Insurance companies are now accumulating to meet the paid-up capital requirement. Meeting paid-up capital requirement is important, but providing a fair return on the capital is challenging. If insurance companies fail to give a fair return to the investors, then there are high chances of business slowdown. Decision to increase capital may seem plain and simple, but it affects whole of supply chains. Single decision of increasing paid-up capital is reflected in many areas because investment has to be simultaneously made in other areas too. Likewise, in order to provide a fair return, lucrative marketing technique needs to be adopted to ensure availability of different insurance products and attract prospective customers. The industry needs to increase its depth and outreach too, sooner the better. At present, insurance companies have been expanding their branches extensively in both cities and villages. The benchmark has reached to 100 branches for life insurance companies and 50 branches for non-life insurance in order to start a business.


NEFPORT ISSUE 33 – JUNE 2018

Insurance is a business where companies sell assurances, nottangible products, in return for someone’s investment. Also, the insurance companies have started collaborating with banks to provide services via banks.Since, the world is getting globalised and digitized, insurance industry is also embarking on the journey of making everything paperless and creating digital platform like Policybazar.comwhich provides ample of choices to compare different types of insurance services provided by the companies. It’s not only about catering to the needs of the literate, but also finding a different way through technology to cater the needs of illiterate. The chase towards a cashless system is also something insurance industry strives for, as it is more efficient and more convenient. The accountability to various stakeholders has increased with the level of innovation. Insurance industry has already started offering something different from traditional risk-mitigating services. The days are not quite far where one need not carry any physical materials and things get done with the help of technology.Finding a niche market in terms of technology that is commercially viable and launching insurance productsis critical. It will help the industry deliver services at a lower cost and based on their requirements, customers will get an array of choices to select from.With technological advancements, insurance industry has a great potential to thrive in the Nepali market.

With the implementation of federalism, there is no clarity on the roles and responsibilities of the three tiers of the government. Irrespective of the arrangements of the governance, insurance has to be done right. If not done the right way, consumers might doubt the importance and value of insurance.Insurance companies are trying to open regional offices in provinces. However, problems might arise in the near futureif the localised insurance company/ office does not get the leverage with the brand name it carries. Considering the fragile stage, if no provisions are made in the governance, insurance companies will face difficulties in expanding their reach. People and the government expect insurance industry to have a large base since the insurance board has already completed its 50th year in the market.Increasing the reach from 10% of the population to at least 25% will be a big challenge for the industry. One of the principles of insurance is a principle of good faith. It is essential for an underwriter to distinguish the interests of an entrepreneur. Technically, moral hazard isprevalent in Nepal. Ample of such instances have been encountered in the country where people misuse services provided by insurance companies. This is where the role of regulator comes in. Relevant policies need to be in place to avoid such mishaps.

“ OUTLOOK

Insurance is the private sector investment and seeking for subsidies from the government is not an option. The government should also think about transferring its risk through various insurance schemes. It could be health insurance, Cattle and Crop insurance, Fruits & Vegetable insurance or any other risk at present falling in government’s welfare scheme but transferrable through insurance. Untimely deaths can be insured withfewer premiums.Likewise, the government has to be smart enough and insure its own resources such as highways, civil offices, government vehicles and hydropower stations, among others to reduce risk. It will gradually boost insurance industry. Also, issues like pensions can be transferred through insurance service.The benefit ultimately will be distributed evenly across the Nepali population. The insurance industry has expectations from the regulator to make everything manageable, accountable and efficient. The government is stressing on the importance of bringing in lower income group and insurance companies are striving for it. Subsequently, they can be encouraged to be entrepreneurs. Insurance industry looks forward to uplifting their status economically through entrepreneurship. Every asset is insurable; hence, the level of risk and uncertainty for an entrepreneur is considerably low today. Similarly,reverse migration needs to get promoted and encouraged. Climate change is taking precedence over everything. Natural calamity is going to be the number one peril in the world. In this context, a business uninsured will shut down. Provision of necessary infrastructure and a free economy would benefit in the long run.To expand the outreach, we need to increase our depth. One person may have multiple assets. Insurance companies need to encourage individuals to bring in those assets under the umbrella of insurance. Earlier, insurance companies were city centric or clustered around “Nagar UnmukhGau.” But now that has changed. In the federal set up, it is necessary to move away from the city and penetrate into the rural areas.

77


78

DOCKING NEPAL’S ECONOMIC ANALYSIS

ENDNOTES ENDNOTES

1.

“PM Secures Three-Fourths Vote.” The Kathmandu Post, March 12, 2018. http://kathmandupost.ekantipur.com/news/2018-03-12/ pm-secures-three-fourths-vote.html

2.

“Deuba is NC PP Leader”. The Kathmandu Post, March 6, 2018. http://kathmandupost.ekantipur.com/news/2018-03-06/deuba-isnc-pp-leader.html

3.

“Prez in Parliament Dawn of a New Era.” The Kathmandu Post, 30 March, 2018. http://kathmandupost.ekantipur.com/news/2018-0330/prez-in-parliament-dawn-of-a-new-era.html

4.

5.

6.

7.

8.

9.

“Nepal and Pakistan Agree to Revive SAARC.” The Kathmandu Post, 6 March, 2018. http://kathmandupost.ekantipur.com/ news/2018-03-06/nepal-and-pakistan-agree-to-revive-saarc.html “Pakistan PM Arrives Today.” The Kathmandu Post, March 5, 2018. http://kathmandupost.ekantipur.com/news/2018-03-05/pakistanpm-arrives-today.html “Bilateral Meeting Between The Rt. Hon. Mr. K. P. Sharma Oli, Prime Minister of Nepal and His Excellency Mr. Shahid Khaqan Abbasi, the Prime Minister of the Islamic Republic of Pakistan.” Press Release, Ministry of Foreign Affairs Nepal, 5 March, 2018. http://mofa.gov.np/prime-minister-islamic-republic-pakistan-visit/ “SAARC Summit Postponed after Member States Pull Out, reports Pakistani Media”. The Times of India, September 28, 2018. https://timesofindia.indiatimes.com/india/Saarc-summitpostponed-after-member-states-pull-out-reports-Pakistani-media/ articleshow/54569165.cms “India Visit Successful, Historic: PM.” The Kathmandu Post, 9 April, 2018. http://kathmandupost.ekantipur.com/news/2018-04-09/indiavisit-successful-historic-pm.html “India-Nepal Statement on New Partnership in Agriculture.” Press Release, Ministry of Foreign Affairs Nepal, April 7, 2018. http://mofa. gov.np/india-nepal-statement-on-new-partnership-in-agriculture/

10. “India-Nepal Statement on Expanding Rail Linkages Connecting Raxaul in India to Kathmandu in Nepal.” Press Release, Ministry of Foreign Affairs Nepal, April 7, 2018. http://mofa.gov.np/indianepal-statement-on-expanding-rail-linkages-connecting-raxaulin-india-to-kathmandu-in-nepal/

16. “Govt Suspends Foreign Trips by its Employees.” My Republica, 23 February, 2018. http://www.myrepublica.com/news/36807/ 17. MoFAGA Seeks Details of Foreign Visits Made by Local Representatives, Government Staffers.” The Himalayan Times, 5 April, 2018. https://thehimalayantimes.com/kathmandu/mofagaseeks-details-of-foreign-visits-made-by-local-representativesgovernment-staffers/ 18. “Govt Halts Voluntary Retirement Scheme.” The Kathmandu Post, 10 April, 2018. http://kathmandupost.ekantipur.com/printedition/ news/2018-04-10/govt-halts-voluntary-retirement-scheme.html 19. “Scrapping Transport Syndicate to Bring “Billions” under Tax Net”. The Himalayan Times, 21 April, 2018. https://thehimalayantimes. com/business/scrapping-transport-syndicate-to-bring-billionsunder-tax-net/ 20. “Nepal’s Election as Chair of the Committee on Conferences.” Press Release, Ministry of Foreign Affairs Nepal, April 24, 2018. http://mofa.gov.np/press-release-on-nepals-election-as-chair-ofthe-committee-on-conferences/ 21. “Nepal’s Election to the Executive Board of UN Women and CSTD.” Press Release, Ministry of Foreign Affairs Nepal, April 17, 2018. http://mofa.gov.np/press-release-on-nepals-election-to-theexecutive-board-of-un-women-and-cstd/ 22. “World Economic Outlook, April 2018,” 9th April, 2018, http://www. imf.org/en/publications/weo 23. “US and China halt imposing import tariffs,” 20th May, 2018, http:// www.bbc.com/news/business-44190169 24. “China is winning Trump’s trade war,” 20th May, 2018, https://www. washingtonpost.com/news/wonk/wp/2018/05/20/china-is-winningtrumps-trade-war/?noredirect=on&utm_term=.c6448b7bda8c 25. “Chinese vice premier says China, U.S. agree not to engage in trade war,” 20th May, 2018, http://www.xinhuanet.com/english/201805/20/c_137191856.htm 26. “North and South Korean leaders hold historic summit: Highlights,” 27th April, 2018, https://edition.cnn.com/asia/live-news/northkorea-south-korea-summit-intl/

11. Joint Statement during the State Visit of Prime Minister of Nepal to India, 6-8 April, 2018.” Press Release, Ministry of Foreign Affairs Nepal, April 7, 2018. http://mofa.gov.np/joint-statement-duringthe-state-visit-of-prime-minister-of-nepal-to-india-6-8-april-2018/

27. “Trump Pulls Out of North Korea Summit Meeting with Kim Jongun,” 24th May 2018, https://www.nytimes.com/2018/05/24/world/ asia/north-korea-trump-summit.html?hp&action=click&pgtype= Homepage&clickSource=story-heading&module=span-ab-topregion&region=top-news&WT.nav=top-news

12. “Nepal-India Joint Statement during the State Visit of Prime Minister of India to Nepal.” Press Release, Ministry of Foreign Affairs Nepal, May 12, 2018. http://mofa.gov.np/nepal-india-joint-statementduring-the-state-visit-of-prime-minister-of-india-to-nepal/

28. “US Places New Sanctions on Venezuela Day After Election,” 21st May, 2018, https://www.nytimes.com/2018/05/21/us/politics/trumpmaduro-venezuela-sanctions.html

13. “PM Deuba Expands Cabinet, Inducts 8 Ministers.” The Himalayan Times, October 13, 2017. https://thehimalayantimes.com/nepal/ pm-deuba-expands-cabinet-inducts-8-ministers-rpp/

29. “This is how Alexa can record Private Conversations,” 24th May, 2018, https://www.bloomberg.com/news/articles/2018-05-24/ amazon-s-alexa-eavesdropped-and-shared-the-conversationreport

14. “PM Oli “Pulls” Attorney General’s Office, a Constitutional Body under OPMCM”. The Himalayan Times, March 21, 2018. https:// thehimalayantimes.com/kathmandu/pm-oli-brings-attorneygenerals-office-a-constitutional-body-under-opmcm/

30. “Everything you need to know about a new EU data law that could shake up big US tech,” 30th March, 2018, https://www.cnbc. com/2018/03/30/gdpr-everything-you-need-to-know.html

15. “Cabinet Trims Secretaries at Ministries.” The Kathmandu Post, April 4, 2018. http://kathmandupost.ekantipur.com/news/2018-0404/cabinet-trims-secretaries-at-ministries.html

31. “Current Macroeconomic and Financial Situation of Nepal (Based on nine months’ data of 2017/18)”, Nepal Rastra Bank, 15 January, 2018; https://nrb.org.np/ofg/current_macroeconomic/CMEs%20 Six%20Month%20English%202073-74.pdf


NEFPORT ISSUE 33 – JUNE 2018

32. Nepal Economic Survey 2017/18 33. “Paddy production down by 1.5% to 5.15 million tons”; my Republica, February 07, 2018, http://www.myrepublica.com/ news/34588/ 34. “Nepal likely to witness normal monsoon this year”; The Kathmandu Post, April 22,2018, https://kathmandupost.ekantipur.com/ news/2018-04-22/normal-monsoon-this-year.html 35. “Storm leaves banana farmers reeling in Bar”; The Kathmandu Post, May 16, 2018 http://therisingnepal.org.np/index/news/11361 36. “Storm leaves banana farmers reeling in Bara”; The Kathmandu Post, May 19, 2018, http://kathmandupost.ekantipur.com/ printedition/news/2018-05-19/storm-leaves-banana-farmersreeling-in-bara.html 37. “No fear of Fertilizer shortage, AIC says”, The Kathmandu Post, May 24, 2018, http://kathmandupost.ekantipur.com/printedition/ news/2018-05-24/no-fear-of-fertiliser-shortage-aic-says.html 38. “Poultry farmers lose Rs.7.068 million to bird flu”; The Himalayan times, May 21, 2018, https://thehimalayantimes.com/nepal/ chitwan-poultries-lose-rs7-068-million-to-bird-flu/ 39. “New agro roadmap envisions mechanized, modern farming”; The Kathmandu Post, May 7 2018, http://kathmandupost.ekantipur. com/news/2018-05-07/new-agro-roadmap-envisions-mechanisedmodern-farming.html 40. “Nepal Electricity Regulatory Commission (NERC) formation delayed,” The Kathmandu Post, 06 May 2018; http://kathmandupost. ekantipur.com/printedition/news/2018-05-06/formation-of-nercdelayed-yet-again.html 41. “Nepal’s largest solar plant works begin,” The Kathmandu Post, 28 April 2018; kathmandupost.ekantipur.com/news/2018-04-28/ work-begins-on-nepals-largest-solar-plant.html 42. “NEA plans to install battery storage system,” The Kathmandu Post, 11 May 2018; http://kathmandupost.ekantipur.com/news/2018-0511/nea-mulling-to-install-battery-storage-system.html 43. “NEA eliminates power cuts in the industrial sector,” The Kathmandu Post, 10 May 2018; http://kathmandupost.ekantipur. com/news/2018-05-10/nea-to-end-power-cuts-in-industrial-areas. html, The Kathmandu Post, 14 May 2018; http://kathmandupost. ekantipur.com/printedition/news/2018-05-14/entire-country-is-nowfree-of-loadshedding.html 44. “1200 MW Budhigandaki hydroproject tender by next fiscal year,” The Himalayan Times, 09 May 2018; https://thehimalayantimes. com/business/tender-of-1200mw-budhigandaki-by-next-fiscal/ 45. “Foundation of Arun III laid,” My Republica, 12 May 2018; http:// www.myrepublica.com/news/41516/, The Kathmandu Post, 13 May 2018; http://kathmandupost.ekantipur.com/printedition/news/201805-13/900mw-project-launch-elates-sankhuwasabha-folk.html 46. “China proposed Nepal to team up for cross border transmission line DPR,” The Kathmandu Post, 02 May 2018; http://kathmandupost. ekantipur.com/printedition/news/2018-05-02/china-proposesteaming-up-for-power-line-dpr.html 47. “Tender deadline for feasibility study of Tamor Storage Hydro Project extended,” The Kathmandu Post, 16 May 2018; http:// kathmandupost.ekantipur.com/printedition/news/2018-05-16/ tender-deadline-for-feasibility-study-extended.html 48. Ashutosh Mani Dixit, “National Study /Paper – Infrastructure finance strategies for sustainable development in Nepal”, Nepal Planning Commission, February 2017 49. “Nepal-India pipeline likely to be completed in 2020”, Money, The Kathmandu Post, 10th April 2018, accessed on 21st May 2018; http://kathmandupost.ekantipur.com/printedition/news/2018-0410/nepal-india-pipeline-likely-to-be-completed-in-2020.html. 50. “Kavre’s Nagidanda identified for airport construction”, The

Himalayan Times, 18th May 2018, accessed on 21st May 2018; https://thehimalayantimes.com/business/kavres-nagidandaidentified-for-airport-construction/. Sangam Prasain, “Nagidanda named best spot for new domestic airport”, Money, The Kathmandu Post, 20th May 2018, accessed on 21st May 2018; http:// kathmandupost.ekantipur.com/printedition/news/2018-05-20/ nagidanda-named-best-spot-for-new-domestic-airport.html. 51. Anup Ojha, “Kalanki subway to open on June 29”, The Kathmandu Post, 27th May 2018, accessed 28th May 2018; http://kathmandupost.ekantipur.com/printedition/news/2018-0527/kalanki-subway-to-open-on-june-29.html 52. Balaram Ghimire, “NA hands over track to north”, The Kathmandu Post, 21st May 2018, accessed on 28th May 2018; http:// kathmandupost.ekantipur.com/printedition/news/2018-05-21/nahands-over-track-to-north.html. 53. Bibek Subedi, “Indian firm seeks Rs 3b for expressway DPR”, Money, The Kathmandu Nepal, 8th May 2018, accessed 28th May 2018; http://kathmandupost.ekantipur.com/printedition/news/201805-08/indian-firm-seeks-rs3b-for-expressway-dpr.html. 54. Umesh Poudel, “DoR to build Chure Highway in 10 year” The Himalayan Times, 14th April, 2018, accessed 28th May 2018; https://thehimalayantimes.com/business/dor-to-build-churehighway-in-10-years/ 55. Madhav Aryal, “Construction of North-South highway moves ahead swiftly”, Money, The Kathmandu Post, 8th April 2018, accessed 28th May 2018; http://kathmandupost.ekantipur.com/printedition/ news/2018-04-08/construction-of-north-south-highway-movesahead-swiftly.html 56. “EIA report of Nijgadh Airport Okayed”, The Himalayan Times, 26th May 2018, accessed 29th May 2018; https://thehimalayantimes. com/business/eia-report-of-nijgadh-airport-okayed/. 57. Sangam Prasain, “$1.21b Nijgadh Int’l Airport project cleared for takeoff”, Money, The Kathmandu Post, 25th May 2018; accessed 29th May 2018; http://kathmandupost.ekantipur.com/printedition/ news/2018-05-25/121b-nijgadh-intl-airport-project-cleared-fortakeoff.html. 58. Byas Shankar Upadhyaaya, “Rajbiraj airport gets rolling after successful test flight”, The Himalayan Times, 23rd May 2018, accessed 29th May 2018; https://thehimalayantimes.com/nepal/ rajbiraj-airport-gets-rolling-after-successful-test-flight/ 59. “Test Flight successful at Sanfebagar airport”, The Himalayan Times, 26th May 2018, accessed 29th May, 2018; https:// thehimalayantimes.com/nepal/test-flight-successful-atsanfebagar-airport/. 60. “KMC signs MoU with China Railway for monorail feasibility study”, The Kathmandu Post, 26th May 2018, accessed 29th May 2018; http://kathmandupost.ekantipur.com/printedition/news/2018-0526/kmc-signs-mou-with-china-railway-for-monorail-feasibilitystudy.html. 61. Sanjeev Giri, “Chinese team begins initial railway study”, Money, The Kathmandu Post, 24th May 2018, accessed 29th May 2018; http://kathmandupost.ekantipur.com/printedition/news/2018-0524/chinese-team-begins-initial-railway-study.html. 62. “New cellphone app to update city air quality”, The Kathmandu Post, March 30,2018, http://kathmandupost.ekantipur.com/ printedition/news/2018-03-30/new-cellphone-app-to-update-cityair-quality.html 63. “Nepal Telecom extending coverage to 175 new locations” , The Kathmandu Post, June 10, 2017, http://kathmandupost.ekantipur. com/printedition/news/2017-06-10/nepal-telecom-extendingcoverage-to-175-new-locations.html 64. “Ntc Operates Mobile Service In Upper Dolpa”, April 30 ,2018, https://www.nepalitelecom.com/2018/04/ntc-upper-dolpa-mobileservice.html

79


80

DOCKING NEPAL’S ECONOMIC ANALYSIS

65. “KMC to set up free Wi-Fi zones”, The Himalayan times, April 4 2018, https://thehimalayantimes.com/kathmandu/kmc-to-set-upfree-wi-fi-zones/

84. “Rs 2.64b in unsettled accounts at Health ministry”, My Republica, April 23, 2018, http://www.myrepublica.com/news/40401/

66. “Registration of IP to go digital: Govt “, Kathmandu Post, May 5 2018, http://kathmandupost.ekantipur.com/printedition/news/201805-05/registration-of-ip-to-go-digital-govt.html

85. “Ministry launches ‘Safe Motherhood Year 2075’ “, The Kathmandu Post, April 17, 2018, http://kathmandupost.ekantipur.com/ printedition/news/2018-04-17/ministry-launches-safe-motherhoodyear-2075.html

67. “All government transactions go digital now” , April 25, 2018, http:// english.onlinekhabar.com/all-government-transactions-go-digitalnow.html

86. “Tourists arrivals grow 11 percent in April,” 18th May, 2018, http:// kathmandupost.ekantipur.com/news/2018-05-18/tourist-arrivalsgrow-11-percent-in-april.html

68. Ministry of Finance “Economic Survey 2017/18

87. “TourMin issues 100-day plan to revitalize tourism,” 31st March, 2018, http://kathmandupost.ekantipur.com/news/2018-03-31/ tourmin-issues-100-day-plan-to-revitalise-tourism.html

69. “7,500 claims filed seeking compensation from Oriental Cooperative”, The Himalayan Times, 21st May 2018, accessed 30th May 2018; http://www.housingnepal.com/news/national/7500-claims-filed-seeking-compensation-from-oriental-cooperative. 70. “KMC revokes double taxation on income from house rent”, The Himalayan Times, 11th May 2018, accessed 30th May 2018; http://www.housingnepal.com/news/national/kmc-revokes-doubletaxation-on-income-from-house-rent. 71. “NLHDA property Expo 2018 overview”, Nepal Housing and Land Developers Association, 10 May 2018. 72. “Government replaces DEO with EDCU”, The Himalayan Times, April 12, 2018, https://thehimalayantimes.com/nepal/governmentreplaces-deo-with-edcu/ 73. “Local bodies clueless on managing schools”, The Kathmandu Post, February 8, 2018, http://kathmandupost.ekantipur.com/ printedition/news/2018-02-08/local-bodies-clueless-on-managingschools.html 74. “Edu Ministry pressed to deploy staff to local units”, The Kathmandu Post, April 19, 2018, http://kathmandupost.ekantipur.com/ printedition/news/2018-04-19/edu-ministry-pressed-to-deploystaff-to-local-units.html 75. “Ministry unveils five-year road map”, The Kathmandu Post, March 12, 2018, http://kathmandupost.ekantipur.com/printedition/ news/2018-04-12/ministry-unveils-five-year-road-map.html 76. “School enrolment campaign starts on April 15”, The Kathmandu Post, April 07, 2018, http://kathmandupost.ekantipur.com/ news/2018-04-07/school-enrolment-campaign-starts-on-april-15. html 77.

88. “GVA growth in hotel, restaurant sector to reach 9.77 percent: CBS,” 26th April, 2018, http://www.myrepublica.com/news/40572/ 89. “PM lays out plans for prosperity,” 15th April, 2018, http:// kathmandupost.ekantipur.com/news/2018-04-15/pm-lays-outplan-for-prosperity.html 90. “Logo and slogan unveiled for Karnali-Rara Tourism Year,” 1st April, 2018, http://www.myrepublica.com/news/39085/ 91. “Travel, tourism pumps Rs195b into economy,” 28th March, 2018, http://kathmandupost.ekantipur.com/news/2018-03-28/traveltourism-pumps-rs195b-into-economy.html 92. “NRB expands the definition of ‘tourism’ for lending,” 1st May, 2018, http://www.myrepublica.com/news/40864/ 93. “Nepal, India agree to amend transit treaty to facilitate Nepal’s trade”, My Republica, April 30, 2018, http://www.myrepublica. com/news/40815/ 94. “Biratnagar trials Nepal’s second cargo train route”, The Kathmandu Post, April 27, 2018, http://kathmandupost.ekantipur.com/ printedition/news/2018-04-27/biratnagar-trials-nepals-secondcargo-train-route.html 95. “Record high performance of ADB-funded projects”, The Himalayan Times, February 24,2018, http://1hu9t72zwflj44abyp2h0pfewpengine.netdna-ssl.com/wp-content/uploads/2018/02/BIZ_ graph-copy.jpg 96. “Foreign-funded projects go to local levels from next fiscal”, My Republica, February 18, 2018, http://www.myrepublica.com/ news/36536/

“377 individuals take guardianship of 709 out-of-school kids”, The Himalayan Times, May 23, 2018, https://thehimalayantimes. com/kathmandu/377-individuals-take-guardianship-of-709-outof-school-kids/

97. “Govt renews controversial Indian embassy Small Grants Project”, My Republica, May 3, 2018, http://www.myrepublica.com/ news/40985/

78. “Type B flu virus: An emerging threat?”, The Himalayan Times, April 5, 2018, https://thehimalayantimes.com/opinion/type-b-fluvirus-an-emerging-threat/

98. “World Bank approves credit worth $266 million to Nepal”, The Himalayan Times, March 21, 2018, https://thehimalayantimes.com/ business/world-bank-approves-credit-worth-266-million-to-nepal/

79. “Indian firm to produce anti-cancer drug in Nepal”, My Republica, February 20,2018, http://www.myrepublica.com/news/36632/

99. “MCA Nepal established to direct US-funded projects”, The Kathmandu Post, April 26, 2018, http://kathmandupost.ekantipur. com/printedition/news/2018-04-26/mca-nepal-established-todirect-us-funded-projects.html

80. “Nepal-made drone serves remote villages”, The Kathmandu Post, May 1, 2018, http://kathmandupost.ekantipur.com/printedition/ news/2018-05-01/nepal-made-drone-serves-remote-villages.html 81. “State-owned Nepal Drugs to launch new product monthly”, The Kathmandu Post, February 28, 2018, http://kathmandupost. ekantipur.com/printedition/news/2018-02-28/state-owned-nepaldrugs-to-launch-new-product-monthly.html 82. “Vitamin D deficiency cases on the rise”, The Himalayan Times, April 01, 2018, https://thehimalayantimes.com/kathmandu/vitamind-deficiency-cases-on-the-rise/ 83. “Vitamin D deficiency increases risk of diabetes, shows research”, The Himalayan Times, April 01, 2018,https://thehimalayantimes. com/nepal/vitamin-d-deficiency-increases-risk-of-diabetes-showsresearch/

100. “Humla to be linked with road connectivity under UK government’s Rural Access Programme”, The Himalaya Times, April 24, 2018, https://thehimalayantimes.com/business/humla-to-be-linked-withroad-connectivity-under-uk-govts-rural-access-programme/ 101. “Govt sets new rule to protect Nepalis working abroad”, 29th May, 2018, http://kathmandupost.ekantipur.com/printedition/news/201805-09/govt-sets-new-rule-to-protect-nepalis-working-abroad.html 102. “Govt. to set up three offices outside Capital’’, 21st May, 2018, http://kathmandupost.ekantipur.com/printedition/news/2018-0321/govt-to-set-up-three-offices-outside-capital.html


NEF PROFILE NEF PROFILE

Nepal Economic Forum (NEF) is a premier private-sector led economic policy and research organisation that seeks to redefine the economic development discourse in Nepal. Established in 2009 as a not-for-profit organisation under the beed (www.beed.com.np) umbrella, NEF is a thought center that is working to create positive transformations in policy reforms. One of the big updates for NEF this year was its feature in the list of Top Think Tanks in Southeast Asia and the Pacific in the 2017 Global Go To Think Tank Index. The report was released by the Think Tanks and Civil Societies Program under University of Pennsylvania. NEF stands out in being able to make 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’ Think Tank Fund.

NEPAL ECONOMIC FORUM

NEF works in partnership with many Nepali and international institutions in its quest to mainstream the discourse on the Nepali economy, which has not been given the necessary space it deserves. NEF has partnered with the Himalayan Consensus Institute (HCI) to facilitate the development of alternative development paradigms and successfully held the second Himalayan Consensus Summit 2017 in March 2017.

NEF BROADLY WORKS UNDER THREE AREAS:

BPRC

The Business Policy Research 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 publication and conducting neftalk, a platform for policy discourse.

PPCP

Through the Center for Public, Private and Community Partnerships (PPCP), the partnerships discourse is further elaborated through addition of the community dimension to existing models of public private partnerships. Apart from standalone interventions, the PPCP perspective is integrated in the work that NEF and beed initiate. NEF operates in the domain of Development Consulting through its devCon division in conjunction with beed management.. 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 and public private dialogue.

We are striving to ensure financial sustainability for NEF to complement the support it currently receives from beed management and the Open Society Foundations. If you are interested to support NEF, please do get in touch with sujeev.shakya@beed.com.np or niraj.kc@beed.com.np


NEPAL ECONOMIC FORUM

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

ISSUE 33 | JUNE 2018

NEPAL ECONOMIC FORUM

INSURANCE SPECIAL

DOCKING NEPAL’S ECONOMIC ANALYSIS

DOCKING NEPAL’S ECONOMIC ANALYSIS ISSUE 33 | JUNE 2018

Nefport 33 - Insurance Special  

Nefport 33, Insurance Special, highlights the future challenges and opportunities in the sector. We would like to thank all the key contribu...

Nefport 33 - Insurance Special  

Nefport 33, Insurance Special, highlights the future challenges and opportunities in the sector. We would like to thank all the key contribu...

Advertisement