Nefport Issue 14

NEPAL ECONOMIC FORUM

nefport Docking Nepal’s Economic Analysis september 2013 | Issue 14

Contents 05

september 2013 | Issue 14

11

Energy

13

Foreign Aid

General Overview

15

Health

06

Political Overview

17

Infrastructure

07

International Economy

17

Manufacturing and Trade

Macroeconomic Overview

19

Real Estate

08

Agriculture

20

Remittance

10

Education

22 Telecommunication and Media

Editorial

22

Tourism

25

Macroeconomic Outlook

Review Issue 14 | September 2013

28

Budget FY 2013/14

Publisher: Nepal Economic Forum Website: www.nepaleconomicforum.org

31

Financial Markets

35

Capital Markets

38

Endnotes

40

NEF Profile

P.O.Box 7025, Krishna Galli, Lalitpur - 3, Nepal Phone: +977 1 554-8400 email: info@nepaleconomicforum.org Editor: Serah Basnet Contributors:Anup Subedi, Chandni Singh, Pragya Ratna Shakya, Raju Tuladhar, Rojesh Shrestha, Shayasta Tuladhar, Shristi Singh Design & Layout: Big Stone Medium contact@bigstonemedium.com

Editorial

W

e are happy to present you the fourteenth issue of nefport, which provides an overview of the events of the past two months that had an impact on the Nepali economy.

A budget of NPR 517.24 billion has been released for fiscal year 2013-14. This is the first full budget to be released in the last two years and, as such, has been welcomed with open arms, especially as it takes the private sector and Constituent Assembly elections as a priority. Effective implementation of the budget rests on holding of elections in a timely manner.

The US dollar continues to appreciate in value, hovering close to the NPR 100 to USD 1 mark. We have used USD conversation rate of NPR 95.12 to a dollar, the two month average, for this issue.

We continue to cover the sections in the manner readers are now used to: the first section provides a general overview of the macroeconomic state of Nepal’s economy.

It goes into some depth within each sector and provides an overview of the key stories that have developed over the last quarter. This section also provides an outlook for the next quarter of the Nepali economy.

Like in the previous issues, the second part of nefport presents an in depth review of the financial and capital markets, where we provide a detailed analysis and assessment of the performance and figures of banks, financial institutions and capital markets.

This issue also includes a general review of the budget for the FY 2013-14.

Nepal Economic Forum, a division of beed, is a not-for-profit organization that functions as Nepal’s premier private sector led economic policy and research institution. We would like to thank beed invest and beed management for their support in making this issue possible.

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

Sujeev Shakya Chairman Nepal Economic Forum

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Political Overview

“

Even as the nation gears up for the November elections, growing discontentment among the smaller parties regarding the Constituent Assembly’s current structure and the election date threatens to throw Nepal back into a political deadlock. Though the government is working to find an amicable solution, it remains to be seen if it will be able to bring the sharply divided political parties to an agreement.

NPR 517 billion budget presented:

After two years of successive interim budgets, Finance Minister, Shankar Prasad Koirala, presented a budget of NPR 517 billion (USD 5 billion) for the next fiscal year.1 The budget allocated NPR 353 billion (USD 4 billion) for recurrent expenditure, NPR 85 billion (USD 894 million) for capital expenditure and NPR 79 billion (USD 831 million) for financing purposes. The budget focuses on the energy and the agriculture sector. The budget plans to collect NPR 356 billion (USD 4 billion) from revenue, NPR 6 billion (USD 63 million) in principle refund, and NPR 70 billion (736 million) from foreign grants. The budget plans to raise NPR 44 billion (USD 463 million) in foreign loans and Rs 44 billion (USD 463 million) from internal loans.

Alliance of 33 parties rejects elections:

The alliance of 33 small opposition parties led by the CPN-Maoist has forwarded an 18 point demand to the high level political committee, putting pressures on the government to postpone the elections scheduled to be held on November 19.2 Till date, various rounds of discussions have been held between the government and the political parties to forge a consensus on

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various issues, including election dates.

A contentious issue is the structure of the Constituent Assembly. Madhesi parties, and even UCPN (M), have decided to opt for the previous provision of 601 seats Constituent Assembly and old proportional representation provisions. Meanwhile, as a clear snub to the alliance, parties such as Nepali Congress and Rastriya Prajatantra Party (RPP) have already started working on their election campaigns.

A cabinet meeting has approved the proposal by the Ministry of Home Affairs to transfer 10 Deputy Inspector General (DIG) and seven secretaries.3 One would expect a transitional technocrat government to refrain from making administrative decisions but such sweeping bureaucratic changes put a question mark on their independence. The following are the newly appointed secretaries in various ministries: Biswaprakash Pandit (Ministry for Energy), Hariram Koirala (Office of the Vice President), Krishna Chandra Paudel (Water and Energy Commission), Ganesh Raj Joshi (Ministry of Forests and Soil Conservation), Lal Mani Joshi (Ministry of Cooperatives and Poverty Alleviation), Sharada Re-shuffle in the bureaucracy:

Prasad Trital (Office of the President), and Janardhan Nepal (Ministry of Commerce and Supplies).

Similarly, 10 DIGs have been appointed to the following areas: Upendra Kanta Aryal, Eastern regional headquarter; Surendra Shah, Western regional headquarter; Bigyan Raj Sharma, Central development regional headquarter; Rajendra Singh Bhandari, Mid-western regional headquarters; Narayan Bastakoti, Farwestern regional headquarters; Keshav Adhikari, Metropolitan Police Traffic Division; Gopal Bhandari, Tribhuvan International Airport; Prakash Aryal, Central Investigation Bureau; Bam Bahadur Bhandari, Directorate of Counter Terrorism; and Nawaraj Silwal, Nepal Police headquarters.

outlook As in any democracy, the unrepresented will find ways to make their voice heard through a united front. Nepal will need to resolve the issues as quickly as possible and look to a stable political environment, which will positively impact the economy.

docking nepal’s economic analysis

International Economy Although most economies are struggling to bounce back, the American economy seems to be making steady progress, albeit modest steps to

”

recovery. As investments are being attracted back to America, countries such as India, who are already having a hard time expanding their

economies, are bound to face more adversaries.

Bhutan election results signal change:

In Bhutan’s second general elections, People’s Democratic Party (PDP) had a sweeping victory with 32 out of 47 seats in parliament making Tshering Tobgay the new Prime Minister.4 PDP was in the opposition winning only 2 seats in the last election five years ago and was said to have little hope for winning the elections in 2013. The historical win for PDP is said to be supported by India’s decision to lapse the subsidy for LPG, driving up the cost nearly three times. The current prime minister’s use of social media was able to garner support from the youth, a strategy that worked in PDP’s favor.

Amazon acquires The Washington Post: The 135 year old paper, The

Washington Post, was acquired by Amazon founder Jeff Bezos for USD 250 million (NPR 24 billion).5 It is expected that the new ownership will push the company to experiment and take on a more digital outlook. The acquisition has been called “the iceberg saves the titanic” 6 to emphasize the fact that “new media” bought into the “old” one but more importantly, Bezos bought the brand of the Post, one

of the premier newspapers in the English-speaking world, and will use it to venture further into the digital market. The acquisition also alludes to the control of the media because of the connection between the two most important brands in the digital and publication markets respectively.

Indian Rupee weakens to the Dollar:

The Indian Rupee is hovering around an all time low of INR 61 to the US Dollar. The strength of the dollar can be attributed to recovery of the American economy; the International Monetary Fund (IMF) has forecasted that the US economy will grow by about 2.7% in 2014.7 There are other sign to show that the American economy is recovering: cleaning out of bad mortgage debts, recovery of the housing market, and increase in the job market. As a result, America is able to attract investments, which had earlier moved to greener pastures. The Indian Rupee is faltering also because India is grappling with sluggish economic growth, rising inflation and trade and fiscal deficits.8 Japanese Economy slows down: With GDP at USD 5 trillion, Japan stood as

the third largest economy in the world, after China and the United States of America, for the third consecutive quarter.9 Although in the last quarter, the Japanese economy was growing at 3.8%, in this quarter, which ended in June 2013, it grew at 2.6%. The favorable economic growth in Japan has been helped by the Prime Minister Shinzo Abe government’s monetary and fiscal stimulus. The economic growth has been supported by private consumption, which pushed spending on food, travel and luxury products; however, capital expenditure still needs a strong stimulus. The weaker growth in China, Japan’s biggest trading partner, is also a concern for the Japanese economy.

outlook Both the government and private sector in various parts of the world are supporting and accelerating economic growth. As economic activities increase in different parts of the world, the ripple effects in the form of increased exports from Nepal is likely. On the other hand, devaluation of the Nepali Rupee will increase the amount spent on imports.

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macroeconomic OVERview

Nepal Rastra Bank (NRB) has unveiled a ‘flexible’ monetary policy for the fiscal year 2013-2014 by increasing the compulsory lending to energy and agriculture, reducing statutory liquidity ratio and cash reserve, and further easing refinancing to the productive sector to help attain high economic growth.

Agriculture Agriculture as a priority sector has been getting ample attention from the government.

Agro friendly budget, supportive lending policies, increase in import of fertilizers, and favorable monsoon should help this sector prosper this FY 2013-14. Despite these, there is still room for improvement to enhance the performance of this sector further.

Agriculture budget increase: Annual budget for the agriculture sector was increased by 81.39% to NPR 21.40 billion (USD 223 million) for the FY 2012-13 by the government to commercialize the farm sector and to increase production and productivity.10 The government has announced it will implement the Agriculture Development Strategy (ADS), a 20 year strategy paper for the agriculture sector. The budget has also adopted different plans and strategies to promote the agriculture sector, such as NPR 6.07 billion (USD 63 million) subsidies on farm mechanization, 50% cash incentive for estab-

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lishing organic manure factories, and transport subsidy on fertilizers and seed in 26 food insecure districts.

The amount of loans floated by financial institution towards agriculture sector has remained stagnant at NPR 37 billion (USD 385 million) in comparison to the same period last year.

Agro loan stood at NPR 37.08 billion (USD 390 million) by the sixth month of the current FY and increased to NPR 37.62 billion (USD 392 million) by the tenth month as shown in Figure 1. In spite of constant pressure from the central bank, financial institutions still remain skeptical about financing the agriculture sector.11 Loans to agro sector static:

Although the financing received by the agro sector has more than doubled in the last two years, from NPR 12.5 billion (USD 130 million) in July 2011 to NPR 37.6 billion (USD 392 million) by May 2013, lack of required

expertise to make efficient financing for agro loans has been a hindrance as the loan officers at banks are not well trained for selling agro insurance. import increases: Procurement of chemical fertilizers during this fiscal year amounted to a historic high of 230,313 tons. Acute shortage of fertilizers last year triggered a massive buying of fertilizers this year.

In the previous year, Agriculture Inputs Company sold 144,000 tons of fertilizers. State-subsidized fertilizers fulfilled only 25-30% of the total fertilizer demand, and the rest of the demand were met from informal imports or smuggling through the porous Indian border points. A study conducted by the Finance Ministry in 2006 has put the share of informal fertilizer imports at 71.6% of total fertilizer imports.12 As shown in Figure 2, although formal supply is increasing, there is a huge gap between the forecasted supply and demand.

Fertilizer

docking nepal’s economic analysis

Macroeconomic Overview

50% subsidy on crop and animal insurance: To promote insurance

Figure 1: Agriculture loan in billions

towards agro sector, the government has approved a proposal to provide 50% subsidy on premium for animal and crop insurance. This initiative by the government is expected to encourage farmer, who would otherwise be reluctant to spend on the premium, to insure their agriculture products. An insurance coverage fund of NPR 10 million (USD 104 million) has been created and farmers have to pay a premium amounting 5%, 6%, and 2% per annum of the insurance coverage of crops, poultry, and fishery respectively.

The government has decided to subsidize crop and animal insurance as limited numbers of insurance companies seemed to be interested in covering the agriculture sector. Out of 17 insurance companies, only 7 have entered the agro sector even after the Insurance Board issued a directive last February making it compulsory for them to sell agro insurance. Oriental Insurance, National Insurance, Neco Figure 2: Forecast demand and actual supply of fertilizers

Source: The Himalayan Times

Insurance, Shikhar Insurance, NLG Insurance, Siddhartha Insurance, and Himalayan General Insurance are the insurer covering the agro sector.

The current insurance coverage is worth NPR 23.23 million (USD 0.24 million) and so far NPR 1.02 million (USD 0.01 million) has been collected as premium from farmers. Of the three, crop insurance seems to be the least favored insurance as none of the insurance companies are ready to insure crop due to absence of valuation of crop. The Insurance Board has said that since its valuation is still under process, crop insurance may take some time.14 Early rain improves paddy plantation: With an early start

Source: The Himalayan Times, Fertilizer Development Policy in Nepal13

of monsoons this year, paddy plantation has increased to 15% compared to 9% in the same period last year (see Figure 3: Percentage increase in paddy production during

monsoon season). Statistic from the Ministry of Agriculture Development shows that plantation took place on 28,251 hectare of the total 1.52 million hectares of paddy fields across the country, which registers an increase in plantation compared to the same period last year. Similarly, plantation in the mountain regions increased from 27% to 46% and from 14% to 25.5% in the hilly region in comparison to the same period last year.15 Last year, the country missed the early phase of monsoon, affecting the production of paddy; paddy output dropped 11.3% last year.

The overall production of summer crops—paddy, maize, millet and buckwheat—dropped 9.99% this fiscal year compared to last year. As per the Ministry of Agriculture Development, the country will face rice deficit of 900,000 tons this year due to the decline in paddy output. Nepal imported NPR 11.60 billion (USD 121 million) worth of rice from the global market in the first 10 months of the fiscal year according

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Macroeconomic Overview

fair organized by Kantipur Publications in association with Global Education Counseling Center.16 The education fair aimed at providing students with an opportunity to learn about different courses available across the globe, interact directly with representatives from various colleges and choose the right academic institution and destination.

Figure 3: Percentage increase in paddy production during monsoon season

Source: Ministry of Agriculture Development

to Trade and Export Promotion Centre.

The country imported 420,000 tons of the staple during the review period, up from 287,000 tons in the same period last year.

Education Despite implementation of heavily funded quality education programs and increased budgetary allocations for the education sector, their impact on the quality of education in the country appears to be miniscule, if at all. This was made apparent by the national SLC pass percentage for the current year, which has hit an eight year low at 41.5%. As per the budget speech for the current fiscal year, special attention has been placed on expanding access to basic education and the quality of education.

However, based on the outcomes of the SLC results, the government’s investment in this sector will be reanalyzed.

The Kathmandu Post Career EduFair a success: Representatives from over

130 national and international educational institutions interacted with over 133,500 students during the education

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High dropout rate among girls: The Ministry of Education has identified lack of toilets and lack of proper sanitation and hygiene as the major reason behind the high dropout rate among female students. A study conducted by the Department of Education indicates that dropout rates increase as the age of children also increase.

The dropout percentage is 5.6% in grade six, 5.7% in grade seven, 6.7% in grade eight, 6% in grade nine and 7.7% in grade ten. According to the report, only 79.7% of government schools have toilet facilities with only

35% of these schools having separate toilets for girls.17 417 schools open in FY 2012-13:

According to the Government of Nepal’s Economic Survey report, 417 schools were given operating licenses for the FY 2012-13—half of which were private—taking the total number of private and public schools to 34,298. However, despite the increase in number of schools, the total number of students has decreased by 167,000, with the highest decrease being at the primary level. This decrease is said to be a result of the government’s tightening on schools that present fake statistics.18 60 private schools operating illegally in Morang: An inspection conducted

by the Morang District Education Office (DEO) revealed that 60 private schools in the district were found to be illegally operating without being registered. Similarly, over 40 schools were found to be holding classes up to grade eight, despite having licenses to hold classes only up to grade five.19 At present, there are 344 registered private schools running in the district.

Only 4% schools adhered to PMEC:

According to the Ministry of Education, only 4% of public schools have fulfilled the five criteria outlined in the

Table 1 : Nepal Millennium Development Goals Progress Chart for Achieving Universal Primary Education Millennium Development Goals/Targets Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling

Progress / Value

Status

Indicator / Source

1990 / Earliest

Current / Most recent

Net enrolment in primary

64% (1990)

93.7% (2010)

100%

Reaching last grade (%)

38% (1990)

77.9% (2010)

100%

Literacy rate of 14-24 year olds

49.6% (1990)

86.5% (2013)

100%

2015 Target

Source: Nepal Development Update, April 2013, The World Bank

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Macroeconomic Overview

Prioritized Minimum Education Indicators (PMEC) that aims to ensure a child friendly environment in the education sector. Eleven per cent of the schools were found to have fulfilled one criterion, 23% fulfilled two criteria, 32% fulfilled three criteria and 28% fulfilled four.20 SSRP fails to show results: Despite the heavy investment in the Asian Development Bank and World Bank funded School Sector Reform Program (SSRP), the program has failed to show positive results in its five pilot districts.

The program is aimed at improving school level education across districts by increasing children’s access to quality education. Ironically, none of the five districts included in the program managed to attain a pass percentage equal to the national average in the School Leaving Certificate examination. While the national average stood at 41.57% this year, the five districts lagged behind at 25.84%. The success rate for the previous year stood at 32.54% for the five districts against the national average of 47.16%. Trends indicate that the success rate for these SSRP pilot sites has been on a slump for the past four years, i.e. the duration of the project.21

Energy The projected monthly loss for Nepal Oil Corporation (NOC), the cash trapped state owned monopoly, has mounted to NPR 1.15 billion22(USD 12.1 million) for the month of August as a result of fluctuation in crude oil prices in the international market. The huge loss has sparked fear of petroleum shortage, especially with the festive season approaching. However, since NOC does not have outstanding

Table 2: Per Unit Profit/ (Loss) on Petroleum Products as per Current Rates Petroleum Product

Profit/ (Loss) in NPR

Profit/ (Loss) in USD

Petrol

(0.9) per liter

(0.009) per liter

Diesel

(9.3) per liter

(0.09) per liter

Kerosene

6.5 per liter

0.06 per liter

Aviation Turbine Fuel (Duty Paid)

17.9 per liter

0.18 per liter

Aviation Turbine Fuel (Bonded)

22.6 per liter

0.23 per liter

LP Gas

(523.7) per cylinder

(5.5) per cylinder

Estimated Total Loss for August 2013

(1.15 billion)

(12.1 million) Source: Nepal Oil Corporation

dues to its supplier this time, the losses are not expected to affect supply as drastically as before. The losses for the month of August are listed in Table 2. The other state owned monopoly, Nepal Electricity Authority, continues to be plagued by the same issues of growing losses and corruption. In an effort to curb losses, the board of directors of NEA forwarded a proposal to the Electricity Tariff Fixation Committee (ETFC) to hike retail electricity tariff by 20%.31 ETFC is also working on a system to increase electricity tariff by 5% every year. Currently, the power tariff is NPR 7 (USD 0.8) per unit.

year.24 As per the Independent Power Producers (IPPs), the power added to the national grid can be attributed to projects promoted by the private sector.

This figure could have been more had the Nepal Electricity Authority adopted more flexibility in the Power Purchase Agreement. However, despite the progress in power generation, only 70 km of transmission lines were developed this year, which acted as a major bottleneck to the development of the hydropower sector. As per the survey, the total length of the transmission lines stands at 1,987 km.

With the onset of the rainy season, the load shedding hours have reduced to an average of 4 hours per day. Currently, the country’s peak power demand stands around 1,000 MW, while the supply remains around 600 MW, which includes 170 MW of import from India.23

Petroleum products majority of imports:

Hydro projects add 40 MW to national grid: According to the Economic

Survey 2012-13, a total of 40 MW has been added to the national grid in the first eight months of the FY 2012-13.

This figure was at 8.49 MW last year, while it was at 7.72 MW the previous

constitute

Petroleum products have yet again topped the import list for Nepal in the first 11 months of FY 2012-13. With a total import figure of NPR 549.6 billion (USD 5.8 billion), the country imported NPR 100.6 billion (USD 1.1 billion) worth of petroleum products comprising of 18% of the total imports.25 The import of petroleum products has increased at a rate of 15.9% since last year. This increase is a result of increased consumption in the domestic market and increased prices in the international market.

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Macroeconomic Overview

Energy given utmost priority in FY 2013-14 Budget: The Finance Minister,

Shankar Prasad Koirala, specified development, extension and promotion of hydropower and energy sector as one of the key priorities while formulating the annual budget for FY 2013-14.

Breaking away from tradition, the budget earmarks a massive NPR 30 billion (USD 315.4 million) for the energy sector (see Table 3: Allocation of Budget for FY 2013-14 Within the Energy Sector).26 Erosion at dam site risks Kaligandaki A hydro project: The Kaligandaki

River has been causing erosion at the damn site and surrounding areas of the Kaligandaki A Hydropower project, Nepal’s largest hydropower project, located in Syangja district.

The erosion has put the entire structure at risk. Holes seen at the dam for years have widened which, if left untreated, can wash away the surrounding areas, putting the hydro project, and 300 business and residential houses at risk. Dirghayu Shrestha, chief at the Kaligandaki A Hydro Project Generation Centre, said that they have submitted a report to higher authorities asking them to take necessary preventive measures and save the project.27 The Ministry of Commerce and Supplies (MoCS) took the decision to waive off loans worth NPR 12 billion (USD 126.1 million) extended by the government to NOC. This decision has been forwarded to the Ministry of Finance (MoF) for its consent.28 Of the total outstanding loans of NOC amounting to NPR 28 billion (USD 294.4 million), NOC owes NPR 12 billion (USD 126.1 million) to the government and NPR 16 billion (USD 168.2 million) to Employees´ Provident MoCS waives off NOC loans:

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Table 3: Allocation of Budget for FY 2013-14 Within the Energy Sector Allocation (In NPR billion)

Allocation (In USD million)

Construction of the Second Reservoir type Tanahu Hydropower Project(140 MW)

1.05

11

Timely completion of the Upper Trishuli 3 A (60 MW), Upper Modi (42 MW), Raghughat (32 MW), Chameliyagadh (30 MW), Kulekhani III (14 MW) projects.

4.66

49

Construction of transmission lines

13.5

141.9

Ongoing Dhalkebar-Mujaffarpur 400 KV and KattaiyaKushaha 132 KV cross border transmission lines

1.58

16.6

Detailed Design and Environmental Impact Assessment of reservoir type Budhigandaki (600 MW), Tamor (530 MW), Nalsinghgadh (400 MW), Dudhkoshi (300 MW), Uttarganga (300 MW) projects.

0.39

4.1

Generation of electricity in full capacity through rehabilitation and upgradation of 12 Hydropower projects including Kaligandaki A and Marsyangdi

1.09

11

Continuation of subsidy for micro hydro projects up to 1 megawatt capacity implemented by the community, cooperatives or firms

0.54

5.6

Implementing the solar energy program which will generate up to 4000 KW of energy by the plants installed by 1,25,000 low income households.

1.11

11

Expansion and promotion of solar energy program in urban areas

0.5

5.3

Total Budget for Energy Sector

30

315.4

Area

Source: Public Statement on Income & Expenditure for the Fiscal Year 2013-14, July 14, 2013, Ministry of Finance

Fund, Citizens Investment Trust and Rastriya Banijya Bank. The MoF had earlier rejected the request of NOC to convert the outstanding loan amount into equities of the government.

License provided to 29 hydro projects this fiscal year: The Department of

Electricity Development (DoED) issued power generation licenses to 29

hydropower projects in FY 2012-13.

The total installed capacity of these projects is 794 MW.29 The power generation license is only given to projects after certain criteria are fulfilled. Hydropower producers need to conduct a detailed feasibility study along with an Environment Impact Assessment, sign the power Purchase Agreement or Connection Agreement,

docking nepal’s economic analysis

Macroeconomic Overview

obtain financial closure and submit industrial registration documents to apply for the power generation license.

Officials at the DoED state that since all the aforementioned criteria have to be fulfilled to obtain the power generation license, they are hopeful that these projects will be completed on time. The major projects that have received power generation license are listed in Table 4.

provide long term loans for 30 years at an interest rate of 1.75%.30 Although the line of credit was scheduled to come into effect from June 29, 2012, it was delayed due to failure of the government of Nepal to submit progress reports of the projects. The EXIM Bank is also processing other projects to release additional loans.

Table 4: Major Hydropower Projects that received License in FY 2012-13

Nepal, in FY 2012-13, cancelled more than 600 licenses given to private firms to generate 11,000 MW of hydroelectricity. Officials from the DoED stated that these firms were only holding onto their licenses without making any progress for years, which is why it was necessary to cancel their license and start a fresh process. Firms that failed to pay renewal fees or submit progress reports also got their licenses cancelled.

Such a move will discourage illegal license trade, where people obtain licenses only to sell it to prospective buyers. With the 2,000 MW reserved for hydropower projects coupled with 11,000 MW freed through the license reform, the government can now immediately give out 225 licenses to develop hydropower projects worth 13,000 MW.31

Power Generation

Allocation (In USD million)

Lower Arun

400 MW

11

Rasuwagadhi

111 MW

49

Kabeli A

37.6 MW

141.9

Nyadi Khola

30 MW

16.6

Khani Khola

30 MW

4.1

Project

Source: Rudra Pangeni, “29 hydro projects get generation license”, Republica, July 9, 2013

EXIM Bank approves soft loan for energy projects: The EXIM Bank of

India approved soft loan support worth USD 155 million (NPR 14.7 million) for three projects, namely, Rahughat Hydropower Project, Koshi Corridor Transmission Line Project and Solu Corridor Transmission Line Project.

The government of Nepal and EXIM Bank signed a contract agreement on October 12, 2011, in New Delhi.

Under the agreement, India is to

Government annuls 600 hydroelectricity licenses: The government of

Government to supply electricity to industries through dedicated feeders: In an attempt to address

the demands of the industrial sector which has been hit hard by the power outage, NEA is preparing to supply electricity to industries through dedicated feeders from its six corridors, namely, Sunsari-Morang (12 MW), Simara-Birgunj and Hetauda-Bharatpur (25MW), JanakpurSagarmatha (4 MW), Pokhara (2.5 MW), Kathmandu (5 MW), and Butwal (7.5 MW).32

The proposal to do so was sent to the Electricity Tariff Fixation Commission (ETFC) which will be enforced once the ETFC approves the proposal. Of the 56 MW electricity to be supplied through dedicated feeders, the NEA will manage 30 MW through diesel plants in Hetauda and Duhabi and import 26 MW from India.33 This will ensure that domestic consumers will not get affected by this proposal. Rameshwor Yadav, managing director of NEA, also stated that the dedicated feeder facility will only be provided to industries demanding 1 MW of electricity or more.

Foreign Aid As per the new budget for the FY 2013-14, an increase in aid effectiveness is expected to gradually reduce the dependency on foreign aid. Foreign aid will be mobilized for large scale projects of national priority, and the mobilization process will be made more transparent and accountable. Timely amendments will be made in the Foreign Aid Policy and attempts will be made to graduate Nepal from a Least Developed Country (LDC) status to that of a developing country by 2022.

IDA provides USD 37 million in loans: The Government of Nepal has

accepted USD 37 million (NPR 3.5 billion) in loan from the International Development Association under the World Bank Group. This loan is to be used for the construction of the NepalIndia Electricity Transmission Line and Trade Project.34 Japanese assistance of NPR 25 million for agro project: The Government of

Japan has agreed to extend financial assistance of USD 260,452 (NPR 25 million) to the GLM Institute. The

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Macroeconomic Overview

aid aims at improving the livelihood of farmers in the Sindhuli district by environmentally harmonizing agriculture in the hill areas of the district. The assistance is being provided under the Grant Assistance for Japanese NGO Projects Scheme of the Government of Japan. The project will be implemented within two years though GLM institute in coordination with Srijansil Welfare Society, a local a nongovernmental organization.35

Figure 4: Comparison of Foreign Cash Loans for the first eleven months over four years

WB provides credit assistance to Nepal: The International Development

Japan extends grant for CA elections:

The Government of Japan has extended a grant of USD 1.5 million (NPR 142 million) to the Government of Nepal for the execution of the Constituent Assembly (CA) elections. The grant will be used for the procurement of CA election related materials, such as security seals, ballot box stickers, fences, etc.37 World Bank provides $207 million for three projects: The International

Development Association (IDA) of the World Bank Group has agreed to provide USD 207.26 million (NPR 0.26 billion) in assistance to the Government of Nepal for three projects with USD 125 million (NPR 11.9 billion) as a grant and the remaining USD 82.26 million (NPR 7.8 billion) as a loan. The three projects that are being funded according to

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Figure 5: Comparison of Foreign Cash Grants over four years 50.00

46.57

45.00 Cash Grants in billions

Association (IDA) of the World Bank Group has agreed to provide a credit assistance of USD 30.5 million (NPR 2.9 billion) to the Government of Nepal (GoN). The assistance aims at providing support to the GoN in carrying out its reform activities, particularly in the area of financial sector development.36

40.00 35.00 30.00 25.00

26.59

25.23

26.21

2009/10

2010/11

20.00 15.00 10.00 5.00 0.00 2011/ 12

2012/ 13

Fiscal Year

agreements with the IDA are the School Sector Reform, Poverty Alleviation II, and the Kali Gandaki Hydropower Plant Project.38 Switzerland provides assistance to GoN: The Government of Switzerland

has pledged USD 14.6 million (NPR 1.39 billion) to the Government of Nepal (GoN), of which USD 4.6 million (NPR 440 million) will be used for the project— Strengthening the Accountability of Local Gov-

ernment (SALG), whereas USD 8.4 million (NPR 800.46 million) will be used for the Safer Migration Project (SAMI) - Phase II. Under the second phase of SAMI, which is being implemented by the Ministry of Labor and Employment, the project will aim at reducing the social and economic costs of foreign employment, whereas the SALG project to be implemented by the Ministry of Federal Affairs and Local Development, will strengthen the capacity

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Macroeconomic Overview

of disadvantaged groups to engage in local governance and access services more effectively to hold local governance actors more accountable.39 ADB loans 80 million for waste water management: A loan assistance of

USD 80 million (NPR 7.6 billion) will be provided by the Asian Development Bank (ADB) to the Government of Nepal for the implementation of the Kathmandu Valley Waste Water Management Project. The aim of the project is to maximize the efficiency and effectiveness of existing waste water infrastructure, and to restore, establish and extend wastewater services.

The three main components of the project include rehabilitation and expansion of sewerage network, modernization and expansion of treatment plants, and capacity building and support for operational and financial improvements. The project will be executed by the Ministry of Urban Development, whereas implementation will be undertaken by the Kathmandu Upatyaka Khanepani Limited (KUKL) and Kathmandu Valley Water Supply Management Board (KVWSMB).40 WB approves USD 30 million loan to Nepal: The World Bank (WB) has

provided a USD 30 million (NPR 2.85 billion) credit to the Government of Nepal to reduce the vulnerability of the banking sector and increase its transparency through acceleration of the financial sector reform program.

The credit is to be used in six main areas—formulation of a financial sector development strategy; restructuring of Nepal Bank Limited and Rastriya Banijya Bank; assessment of the condition of Class A, B and C financial institutions and potential restructuring; strengthening institutional

arrangements to support the bank restructuring process; strengthening the legal and regulatory framework for effective bank resolution; and increasing the transparency of the financial system.41 ADB provides grant for skills training:

The Asian Development Bank (ADB) will be providing a USD 20 million (NPR 1.9 billion) grant to the Government of Nepal in order to facilitate its Technical and Vocational Education, and Training Policy. The project aims to provide market oriented skills training for unemployed or underemployed population, and will focus on providing training to young people in the areas of construction, manufacturing, and services where large skill gaps are currently present. The Skills Development Project is expected to provide basic level training and employment services to over 45,000 people, 40% of which are women and 30% categorized under excluded groups.42 Aid Management Platform portal launched: The Aid Management

Platform (AMP), an online service that offers information on foreign aid, has been launched by the Ministry of Finance (MoF). The AMP is expected to help the Government of Nepal (GoN) and development partners manage aid more effectively as well as maintain transparency within the system. The AMP will allow users to search for information on foreign assistance and also at how the aid is being utilized in various sectors. It is also expected to help analyze the overall impact of foreign assistance across different sectors and geographic locations in Nepal. The MoF aims at integrating the AMP to the GoN’s Budget Management Information System and Financial Management

Information System so that it can track the budget and expenditure details.43 Germany provides Rs. 1.75 billion as grant assistance: The Government of

the Federal Republic of Germany has agreed to provide USD 18.4 million (NPR 1.75 billion) in grant assistance for the implementation of the project— Promotion of Energy Efficiency and Renewable Energies Programme. The grant will be used to invest in solar water pumps in the rural areas of Nepal, and extension of power transmission infrastructure in the Trishuli Corridor.

The project will be implemented in partnership with the Ministry of Environment, Science and Technology.44 The Government of Switzerland has committed to provide a contribution of USD 9.5 million (NPR 900 million) to the Nepal Peace Trust Fund, of which USD 4.7 million (NPR 450 million) will be available for the Constituent Assembly elections, whereas the rest will be available for the local polls.45 Swiss aid to Peace Fund:

Health As per the budget speech for the FY 2013/14, policies have been adopted to ensure basic health services for free. The policies are expected to be put into operation in 15 districts in the next fiscal year and expanded throughout the country within the next five years. Similarly, mechanisms will be put into place for effectiveness of service delivery, as well as expansion of services in zonal, sub regional and regional level hospitals.

Public health at risk from animals:

Animals are responsible for over 70% of tropical diseases in the country, and the threat to public health has

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further increased with the spread of zoonosis—an animal disease that can be transmitted to humans. The Animal Health Directorate and the Department of Livestock Services (DLS) are jointly working towards identifying transmission routes to control infections, following which a campaign will be launched to control the spread of these diseases.

Influenza, leptospirosis, brucellosis and toxoplasmosis are diseases that are communicated from animals to humans. Jaundice, eye, stomach and respiratory diseases, headache and meningitis originate from animal urine, dung, and water polluted by animals. The Nepal Agriculture Research Council is conducting a study on zoonosis, as well as the effect of climate change on the rise of animalto-human infection. The World Bank and the European Union, under the Aviation and Human Influenza Trust, have provided research support of USD 0.1 million (NPR 9.4 million) to the Government of Nepal for further research on the subject.46 Medical crisis in the Kolti region:

The absence of a doctor in the Kolti region’s sole primary health center in north Bajura for the past one and a half years, and the lack of medicines in its nine health posts has resulted in a medical crisis in the area. Though the government provides various types of medicines for free to health centers, health posts and sub-health posts, the Kolti region has not received medicines for even the most common ailments from the district health office for over a month. The region has over 2000 households, with over 100 people visiting the health center and posts daily for treatment. The regional district health office has identified heavy rainfall

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and budget crunch as the reason behind the lack of supply of drugs.47 Combating diseases: As

non-communicable

per a study conducted by the Nepal Health Research Council, four types of non-communicable diseases (NCDs)—cardiovascular diseases, chronic obstructive pulmonary disease (COPD), cancer and diabetes—have been identified as the cause of over 37% of deaths annually across the country.

The study is based on a cross-section of people admitted to 31 selected health institutions, and indicates that the most prevalent NCDs were heart disease (38%), COPD (33%), cancer (19%), and diabetes (10%).48

Problems in telemedicine arise: The government’s ambitious plan to provide specialized health services to the country’s rural populace has hit a major setback.

The much applauded telemedicine services, launched by Patan Hospital in 25 far-flung Himalayan districts in 2011, has been marred by constant load shedding, fluctuations in internet connectivity, and lack of trained professional to operate the service systems. Similarly, lack of medical and communication skills among low-ranking health workers hindering their telecommunication with the doctors at Patan Hospital has also been another setback.49 Road expansion program adversely affects public health: The government’s

road expansion drive, which started in December 2011 and has continued rather haphazardly till date, has lead to major public health concerns. An increasing percentage of the Valley’s population is now suffering from incessant coughing and sneezing. According to a study conducted by the Nepal Health Research Council among 801 children across six schools, over 30% of school

children are suffering from some sort of respiratory diseases, which could be attributed to the deterioration of air quality resulting from the demolition of roads. Till date, 65 km of road reconstruction still needs to be completed.50 Health insurance plan a success: The health insurance program initiated by the Independent Microfinance Group and Nirdhan Organization has had 149 participants from the Banke village in the current year. The program has been extremely beneficial for those individuals unable to afford treatments. Under the program, an individual is charged USD 3.9 (NPR 375) to join, after which an insurance card is provided, which is to be renewed every year. The insurance program covers expenses up to USD 33.6 (NPR 3200) for each member and also ensures discounts at pharmacies, hospital and private clinics. Over 200 individuals were insured in the previous year and USD 449.5 (NPR 42,756) was spent in the treatment of 53 members.

Over the past two years, USD 21,026 (NPR 2 million) has been spent in the treatment over 2864 insured members in the district.51 Medico-legal criteria for brain death on the cards: A clinical criteria is being

developed by a special committee under the Ministry of Health and Population (MoHP) for the donation of brain-dead patients’ organs. Hospitals in the Kathmandu Valley handle around 500 brain-dead patients every year. Once the medico-legal criteria on organ donation are in place, it could pave way for organ transplantation. According to the ministry, about 3,000 people face kidney failure and another 1,000 face liver failure every year in the country. This is the first time Nepal is preparing ethical medico-legal documents to legalize

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Macroeconomic Overview

donation of brain-dead patients’ organs to save lives. Organs of braindead patients can be donated within 24 hours of death if the patients were not suffering from diseases like cancer, AIDS, hepatitis, last stage of diabetes, and communicable diseases.52

Table 5: Budget allocated for some major water and irrigation projects

Infrastructure The 2013-14 budget focuses on three sectors: infrastructure development, exports promotion, and private sector promotion. The budget allocation for infrastructure development is 21.83% of the total budget of NPR 517.24 billion (USD 5.43 billion) amounting to NPR 112.93 billion (USD 1.18 billion).

Budget allocated for major road development projects: The 1,776

km mid-hill highway—also known as ‘Pushpa Lal Highway’—stretching from Ilam to Baitadi has been allocated NPR 1.92 billion (USD 20.18 million). The Postal Highway has been allocated NPR 2.21billion (USD 23.23 million).53 The government has allocated NPR 1.81 billion (USD 19.02 million) to complete the road expansion drive in the capital within the coming fiscal year.

KTM-Hetauda Tunnel construction cost goes

projects, with a budget allocation of over NPR 9 billion (USD 94.61 million) for two major drinking water projects—Melamchi Water Supply Project and Rural Drinking Water.

For details on the budget allocated for some of the major water and irrigation projects, see Table 5.

Highway up: The

Kathmandu-Kulekhani-Hetauda tunnel highway’s initial total cost of NPR 22 billion (USD 231.28 million) is expected to reach NPR 34 billion (USD 357.44 million). The increase in investment cost is attributed to the latest agreement as per which government structures cannot be used for construction.54 Budget allocation for drinking water, irrigation: The 2013-14 budget has

laid emphasis on water and irrigation

Projects

Budget Allocation ‘In NPR’

Melamchi Water Supply Project

5.24 billion

Rural Drinking Water

3.99 billion

Ranjijamara Kulariya Irrigation Project

1.25 billion

Sikta Irrigation Project

1.14 billion

Babai Irrigation Project

450 million Source: Ministry of Finance

Italian firm takes over Melamchi water project: The government signed a

contract with an Italian company ‘CMC Cooperativa Muratori e Cementisti di Ravenna’ for developing diversion tunnel and head works of the Melamchi Drinking Water project. As per the agreement, the contractor, who projected the construction cost at NPR 7.72 billion (USD 81.16 million), has to complete the construction within three years from the date of signing of the contract.55 East-West railway line on the anvil:

The East-West electric railway project has been allocated NPR 1.4 billion (USD 14.71 million) for continuing detailed studies and starting the construction of railway lines.56 The government, in its budget, announced the construction of the 108 km railway line of Bardibas-Simara segment under the East-West railway project. The detailed

project report conducted earlier show the construction of the Bardibas-Simara section to cost approximately NPR 100 billion (USD 1.05 billion).

Govt. plans to shorten Highway: The Department

Mid-Hill

of Roads recently signed a contract with two consultants to conduct a survey to explore the possibility of reducing the length of the proposed Mid-Hill Highway to 1,400 km from the existing 1,776 km by changing the alignment and building tunnels. The government plans to complete the study within a year.

Additional budget for Gautam Buddha Airport: The Asian Development

Bank (ADB) is working in coordination with the Finance Ministry for the final approval of the additional budget for the upgradation of Gautam Buddha Airport at Bhairawa. ADB has assured an additional fund of USD 30 million (NPR 2.85 billion) within August. The project’s total loan will amount to USD 68 million (NPR 6.47 billion) from ADB at an interest rate of 8% per annum. As per the study conducted in 2007-08, the estimated total budget stood at USD 38.15 million (NPR 3.63 billion).57

Manufacturing and Trade The first eleven months of the fiscal year (FY) 2012-13 have been disappointing for the manufacturing and trade sector, with the total exports from the country increasing only by a meager 4% as compared to a 16.3% increase during the same period in FY 2011-12. The country’s major exportable products like pashmina, woolen carpets, readymade garments and handicraft products witnessed a huge fall in their

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Government plans to revise NTIS list The Ministry of Commerce and Supplies is preparing to revise the list of Nepal Trade Integration Strategy (NTIS) 2010 after facing much criticism from exporters regarding the non-inclusion of certain high export value products in its priority list. Despite having a large share in the total exportable products of the country, handknotted carpets and readymade garments are yet to be included in the NTIS list of priority products. Though these two products, along with pashmina and handicraft products, were defined as a special focus area for export promotion and recognized as products with comparative advantage by the Nepal Trade and Competitiveness Study, NTIS has failed to include them in the priority list.

Industrialists have been repeatedly lobbying to include garments and carpets in the NTIS list as these products are in need of special programs to enhance and promote them in the international market. Exporters have been demanding that along with

Due to lack of government programs to promote products currently in the NTIS list, export figures in the first 11 months of 2012-13 have been dismal. According to statistics from the Trade and Export Promotion Centre, exports of woolen products have decreased by 13%, readymade garments by 16.3%, vegetable fats and oil by 43.1%, and iron and steel products by 63.4%, while exports of commodities under NTIS lists like natural honey decreased by 99.7%, articles of silver jewelry by 39.3%, and woolen products by 16%. Among the other NTIS commodities, export of ginger has increased by 208%, medicinal herbs by 56.9%, tea exports increased by 28.4%, while export figures of cardamom and lentils have increased by 7.1% and 19.1% respectively.58

exports. The trade deficit also continued to widen further as the imports increased by 21.2% during the same period. The continuous fall in the exports can be attributed to the exclusion of the country’s major export items from the Nepal Trade Integration Strategy (NTIS) list, inconsistent policies formulated for export promotion strategies, huge ongoing labor shortages coupled with energy crisis.

The current account posted a surplus of NPR 41.56 billion (USD 436.92 million) in the review period as against a surplus of NPR 61.56 billion (USD 647.18 million) in the same period the previous year. The decline in surplus in the current account was largely due to a substantial rise in the imports of goods and services.59

Balance of Payment record surplus:

the fiscal year 2012-13 continued to witness a drop in the export of major commodities to third countries. The exports of handicraft products (metal and wooden), Nepali paper products, pashmina, readymade garments, silver jewelry and woolen carpets decreased by 56.2%, 57.1%, 51%, 26%, 26.6% and 13% respectively. Export of herbs and tea decreased by 93.7% and 9.1% respectively. However, pulses, readymade leather goods, and tanned skin observed an increment of 29.8%, 104.7% and 38.2% respectively.

Meanwhile, exports to India increased

During the first eleven months of the fiscal year 2012-13, the country’s Balance of Payments (BOP) recorded a surplus of NPR 52.69 billion (USD 553.93 million) compared to a surplus of NPR 115.76 billion (USD 1216.98 million) during the same period the previous year. The workers’ remittances inflow into the country recorded a growth of 21.25% with the figure rising to NPR 388.46 billion (USD 4083.89 million) from that of NPR 320.37 billion (USD 3368.06 million) the previous year.

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carpets and readymade garments, the government should enlist woodcraft and stone craft amongst the list of the current NTIS priority products.

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Exports of major exportable items decline: The first eleven months of

by 2.6% compared to an increase of 16.7% in the corresponding period of the previous year. Export of turmeric, rosins, herbs, ginger and turpentine, among others, increased.60 Trade deficit surge further: During the first eleven months of fiscal year 2012-13, the country’s trade deficit surged by 24.5% to NPR 438.67 billion (USD 4611.75 million) compared to an increase of 16.8% during the same period last year (see Table 6: Foreign Trade Statistics based on Eleven Months’ data of 2012-13).

During the review period, the total exports were NPR. 69.92 billion (USD 735.07 million), whereas the total imports stood at NPR. 508.60 billion (USD 5346.93 million).Imports from India increased from NPR 272.26 billion (USD 2862.27 million) to NPR 335.73 billion (USD 3529.54 million), an increase of 23.3%, whereas the total imports from other countries increased from NPR 147.31 billion (USD

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Macroeconomic Overview

1548.67 million) to NPR 172.86 billion (USD 1817.28 million), an increase of 17.3 % as compared to the same period last year.

A significant increase in demand for raw cotton, plastic utensils, baby food and milk products, cement and live animals boosted the import figures from India. Likewise, imports from other countries increased primarily due to an increase in imports of Mild

Steel wire rods, readymade garments, buttons and dry cell batteries.61

based industries have been benefitting from the duty drawback facility.

Small Scale exporters push Export Trading House: The small

Exporters have further urged the government to establish a one-window system and encourage paperless trade to make the export-import process more effective. With the introduction of paperless trade, the processes will be hassle free and more effective since it will consume less time. Likewise, the exporters have also suggested the government to sign a bilateral agreement with possible export destinations, such as Turkey, US and Brazil. Currently, Nepal is already enjoying duty free facility in China and Canada through bilateral agreements.62

for

scale exporters of the country have urged the government to introduce an Export Trading House mechanism with effective policies in place to promote and uplift small scale exporters.

Although the export trading house system exists, only large scale export-

Table 6: Foreign Trade Indicators for the first eleven months (in NPR millions) 2010-11

2011-12 R

2012-13 P

TOTAL EXPORTS

57778.7

67214.5

To India

38791.3

To Other Countries

Percent Change 2011-12

2012-13

69926.6

16.3

4.0

45258.2

46434.9

16.7

2.6

18987.4

21956.3

23491.7

15.6

7.0

TOTAL IMPORTS

359333.3

419573.8

508600.1

16.8

21.2

From India

239688.4

272262.0

335731.2

13.6

23.3

From Other Countries

119644.9

147311.8

172868.9

23.1

17.3

TOTAL TRADE BALANCE

-301554.6

-352359.3

-438673.5

16.8

24.5

With India

-200897.1

-227003.8

-289296.3

13.0

27.4

With Other Countries

-100657.5

-125355.5

-149377.2

24.5

19.2

TOTAL FOREIGN TRADE

417112.0

486788.3

578526.6

16.7

18.8

With India

278479.7

317520.2

382166.1

14.0

20.4

With Other Countries

138632.3

169268.1

196360.6

22.1

16.0

*based on customs data R=Revised / P= Provisional Source: NRB Report - Recent Macroeconomic Situation (11 months) 2069/70

Real Estate The Department of Land Reforms and Management registered a growth of 11.67% in land registration fees from NPR 4.8 billion (USD 50.5 million) in fiscal year (FY) 2011-12 to NPR 5.36 billion (USD 56.34 million) in FY 2012-13. However, the growth of 11.67% is way below the NPR 6.31 billion (USD 66.34 million) land registration fees collected during the peak period of 2008–09. The decline in realty sector during the last few years can be primarily attributed to Nepal Rastra Bank’s (NRB) directive to banking institutions to reduce realty credit exposure to 30% of total lending by mid July 2011 and 25% by mid July 2012 (see Figure 6: Land Registration Fees).63

Land registration revenue rise: The Kathmandu Valley continues to be the prime hub for real estate development.

The collection of land registration fees from the valley during the realty boom period of FY 2008-09 was NPR 3.84 billion (USD 40.37 million). In

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months of the fiscal year 2012-13, registering an increase of 21.3% as against an increase of 39.6% during the same period of the last fiscal year (see Figure 8: Inflow of Worker’s Remittance for First 11 Months of Past Five Fiscal Years). In US dollar terms, remittance inflow went up by 11.8% to USD 4.45 billion (NPR 423.2 billion) compared to an increase of 25.1% in same period of the previous year.66 On a monthly basis, remittance inflows increased by 14.3% in May-June compared to the value of the previous month of this fiscal year.

Figure 6: Land Registration Fees

Source: Department of Land Reform and Management

the subsequent years, the land registration fees declined to NPR 2.52 billion (USD 26.5 million) and NPR 1.32 billion (USD 13.87 million) in 2009-10 and 2010-11 respectively.

Thereafter, revenue collection from registration fees increased to NPR 1.78 billion (USD 18.71 million) and NPR 2.53 billion (USD 26.6 million) in 2011-12 and 2012-13 respectively.64 Slashed interest rates boost home loans: The total home loan disbursed

in April 2012 to NPR 88.3 billion (USD 928.3 million) in April 2013 (see Figure 7: BFI’s Home Loan Lending).

Nepal received NPR 1.2 billion (USD 12.6 million) daily on an average for the first 11 months of FY 2012-13, whereas the country’s average daily GDP for FY 2012-13 as projected by the Central Bureau of Statistics stands at NPR 4.6 billion (USD 48.4 million).

This shows that 26% of the daily GDP is contributed by remittance inflows.

Fiscal Year sends over half million migrant workers abroad: A total of

Remittance Remittance inflows to Nepal reached NPR 388.5 billion (USD 4.08 billion) in the first 11

702,519 migrant workers left the country for foreign employment in FY 2012-13 (see Figure 9: Yearly data of Nepali workers seeking foreign

Figure 7: BFI’s Home Loan Lending

by Banking and Financial Institutions (BFIs) during mid April 2013 amounted to NPR 59.3 billion (USD 623.42 million), an increase of 26% as compared to the same period last year amounting to NPR 46.9 billion (USD 493.06 million).65 The growth in home loans can be attributed to declining home loan interest rate which currently stands at 11%-12% from an all time high of 16%-17%.

However, the total amount of loan disbursed to the realty sector decreased from NPR 95.4 billion (USD 1 billion)

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Source: Current Macroeconomic Situation of Nepal Series, Nepal Rastra Bank

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Macroeconomic Overview

employment for the past five years).67 The highest number was recorded in the month of Mid April to Mid May, while the lowest numbers were recorded during the months from Mid August to Mid November due to the festive season. While Malaysia was the top destination for Nepali workers, Qatar, Saudi Arabia, UAE and Kuwait ranked second to fifth respectively.

Figure 8 : Inflow of Worker’s Remittance for First 11 months of Past Five Fiscal Years

Foreign Employment Bond registers highest subscription rate: The Foreign

Employment Bond 2075 issued from June 2-10, 2013, received subscriptions almost five times the figures of last year.

The NPR 1 billion (USD 10.5 million) bond with an annual interest rate of 10.5% received NPR 42.8 million (USD 450,000) in subscription in a week.68 Last year, NRB had offered bonds worth NPR 1 billion (USD 10.5 million) out of which only NPR 8.6 million (USD 90,400) was subscribed. The bond was saleable to migrant workers, Non Resident Nepalis (NRN) and returnee workers. NRB had designated six agents, four remitters and two financial institutions, targeting NRNs and migrant workers in Malaysia, Saudi Arabia, Qatar, Kuwait, Bahrain, UAE, US, UK, Australia, Japan and Israel. However, despite a higher subscription rate than last year, even this time around the bond was unable to meet expectations. Agents have repeated that lack of marketing and limited subscription period of one week was the reason for not meeting expectations..

Swiss grant to aid remittance sector development: The Government of

Switzerland has agreed to provide a grant of NPR 1.3 billion (USD 13.7 million) to aid development in the foreign employment sector. The Embassy of Switzerland issued a press statement stating that USD 9.1 million

Source: Current Macroeconomic Situation of Nepal Series, Nepal Rastra Bank

(NPR 865.6 million) will be spent on programs in the area of safer labor migration, and the remaining USD 4.6 million (NPR 437.7 million) will be spent on implementing the Strengthening the Accountability of Local Governments (SALG) project.69 The statement further elaborated on the scope of the support whereby the project will provide relevant information to the aspiring migrants and their family, vocational skills trainings, legal support, psychological counseling and shelter for returning migrants in distress. The project will also assist in strengthening the capacity of government agencies to ensure effective implementation of the Foreign Employment Act, 2007. The project will be implemented in 19 districts jointly

by HELVETAS Swiss Inter cooperation under the leadership of the Steering Committee chaired by the Secretary of Ministry of Labor and Employment.

UAE to build satellite cities for migrant workers: UAE has decided to build

satellite cities, formally called worker’s cities, for migrant workers as per the

Gulf Cooperation Council’s (GCC) commitment to decent work for migrant workers. Abu Dhabi will invest USD 5.4 billion (NPR 513.6 billion) in 23 satellite cities capable of providing accommodation for 385,000 workers. These cities will be equipped with medical clinics, parking, yards, walkways, minimarket, green spaces and playgrounds.70 Nepal second largest remittance receiver among LDCs: As per the Least

Developed Countries Report 2012, prepared by United Nations, Nepal ranked second, behind Bangladesh, in remittance inflows among the Least Developed Countries in 2012. Of the USD 27 billion (NPR 2.6 trillion) received by LDCs, Nepal received NPR 359.6 billion (USD 3.8 billion). The top three recipients—Bangladesh, Nepal and Sudan—shared 66% of total remittance inflow to LDCs, it said, adding that from 2009 through 2011, Nepal and Haiti received more foreign exchange from remittance than from exports.

Similarly, a study by World Bank, the Qatar-Nepal Remittance Corridor,

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Figure 9: Yearly data of Nepali workers seeking foreign employment for the past 5 years

Source: Department of Foreign Employment

states that a total of USD 634 million (NPR 60.3 billion) is sent from Qatar to Nepal in the form of remittance, ranking Nepal at sixth place in the list of remittance receivers from Qatar in 2011. Remittance earnings to Nepal increased by 27% from 2010.71

and Nepal Satellite have 3% and 1% respectively (see Figure 10: Market Share of Telecom Operators).73 The data/internet services penetration rate has increased from 18.57% in mid-June 2012 to 25.82% in mid-June 2013 (see Figure 11: Growth Trend of Voice Telephone and Data Service Penetration).74 NT to add 2.91 million telephone lines:

Telecommunication and Media Nepal’s tele-density has increased to 78.85% as of mid-June 2013. The number of telephone lines distributed by telecom companies has reached a total of 20.69 million.

Ncell’s customer base has increased to 10.35 million, while Nepal Telecom (NT) has 8.96 million customers (including fixed line and mobile lines). The rest is shared by the four telecom companies, namely, United Telecom Limited (UTL), Smart Telecom, Nepal Satellite Telecom and STM Telecom Sanchar.72

As of mid-June, Ncell’s and NT’s market share stands at approximately 50% and 43% respectively. UTL commands around 3% market share, while Smart Telecom

Ncell, NT maintains their lead:

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Nepal Telecom (NT), in the current Fiscal Year (2013-14), is planning to add a total of 2.91 million telephone lines bifurcated into 2 million GSM lines, 886,000 CDMA lines, and 27,401 land lines. Further, the state owned enterprise will install 500 WiMAX hotspots across the country.75

Illegal VoIP tops financial crimes list:

Voice over Internet Protocol (VoIP) currently tops the list of tracked financial crimes in the country. Nearly 66% of the total Central Investigation Bureau (CIB) operation on financial crimes consists of illegal VoIP centers. In last three years, 54 operations have been carried out against illegal VoIP by the Central Investigation Bureau, with the government recovering approximately NPR 10 billion (USD 105.13 million) from illegal call bypass operators.76

Tourism The recently announced national budget for 2013-14 exhibited the government’s long term development plan and vision for the tourism industry. The government has earmarked budget for building new infrastructure, developing eco friendly destinations, and creation of new trials along the country. Moreover, the government has provisioned to allocate 30% of the revenues generated by the tourism industry for the benefit of respective local bodies.

Figure 10: Market Share of Telecom Operators

NT to roll out Fiber to the Home service:

NT is launching a new project—Fiber to the Home (FTTH)—to offer customers the fastest internet as well as other value added services, such as voice and television. Under the project, equipments will be installed in 10 exchanges of Kathmandu, Biratnagar, Birgunj, Butwal, Pokhara and Bhadrapur, which enables its system to provide the fiber cable service.

Source: Nepal Telecommunication Authority

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Macroeconomic Overview

Tourist arrivals see a dip: The period of June and July 2013 witnessed 81,832 tourist arrivals to Nepal by air, a decrease of 2.23% as compared to the same period last year (see Figure 12: Tourist Arrivals by air).

Though Indian and Chinese tourists accounted for the highest share in terms of volume, arrivals from Bangladesh, Sri Lanka and Malaysia witnessed a huge growth in their arrivals with an increase of 44.3%, 62.2% and 129.6% respectively.77 Nepal promotes tourism in India:

Nepal Tourism Board (NTB), in association with Paschimanchal Hotel Association Pokhara, jointly organized tourism promotional activities in Varanasi, Allahabad and Faizabad in northern India. In a bid to promote Nepal as an ideal tourism destination, around 30 tour operators and

hoteliers from Pokhara and Bhairawa showcased their promotional packages specially designed for the north Indian travelers. The Nepali entrepreneurs also held productive business to business meetings with local tourism entrepreneurs of the three Indian cities.

Similarly, the Embassy of Nepal in New Delhi—in association with the Federation of Indian Chambers of Commerce & Industry (FICCI) and Hotel & Resort Association of Chandigarh—also organized a “Destination Nepal” seminar in Chandigarh. The Embassy made a detailed presentation on the tourism industry of Nepal and highlighted a range of tourism activities available in Nepal, such as eco, ethno, religious, mountain, river and adventure tourism.

The representatives of the Embassy of Nepal also encouraged the business community of Chandigarh to invest into

Nepal’s tourism business and assured that the Government of Nepal would facilitate measures to boost business relations.78 Budget proposes allocating 30% of tourism revenue to local bodies:

The Ministry of Federal Affairs and Local Development (MoFALD) has initiated a step to implement a provision to allocate 30% of the revenues collected from all tourism sectors to the local bodies in the upcoming budget. Although the provision was finalized when the Local Self Government Act was enforced in 1999, it had not been implemented, except for a partial sum of mountaineering royalty paid to the local government. Currently, only around 11 districts with mountaineering tourism have been benefitting while the districts with trekking routes and other tourism

Figure 11: Growth Trend of Voice Telephone and Data Service Penetration

Source: Nepal Telecommunications Authority “MIS report dated February 2013”

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Macroeconomic Overview

Table 7: Total tourist arrivals by air, July 2013 July

Total ( Jan-July)

Country of Nationality

% Change 2012

2013

ASIA (SAARC)

16602

14169

-14.65%

ASIA (OTHER)

8216

9396

14.36%

64,142

EUROPE

7811

8326

6.59%

OCEANIA

708

886

AMERICAS

2836

OTHERS Total

% Share ‘13 % Change

2012 125699

Jan - July

2013 102318

-18.60%

36.20%

66,298

3.4%

23.5%

78,828

66,535

-15.6%

23.6%

25.14%

9,389

10,682

13.8%

3.8%

3455

21.83%

28,432

27,372

-3.7%

9.7%

2280

2328

2.11%

25,982

23,393

-10.0%

8.3%

38,453

38,560

0.28%

332,472

282,429

-15.1%

100.0%

Source: Nepal Tourism Board

Figure 12: Total Tourist Arrivals by Air

Source: Department of Foreign Employment

remain deprived of their share of this revenue. The disbursement of 30% of the revenue collected would be towards tourism development enhancement of the income generating activities in the tourism sector.79 1.2 million tourists targeted in the current fiscal: Under the Annual

Development Plan 2013-14 formulated by the Ministry of Culture, Tourism and Civil Aviation (MoCTCA), the

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government has envisaged attracting 1.2 million tourists this fiscal year. The newly devised plan has set a target to increase the average length of stay of tourists to 13 days from the current 12.87 days recorded last FY, and raise tourism sector’s contribution to the country’s gross domestic product (GDP) to 3% from the current 2%.

As per the plan, the ministry has accorded high priority to infrastructure

development, conservation of national heritage sites and promotion of homestay and village tourism in line with its “Vision 2020”, a tourism perspective plan, which aims to bring in 2 million foreign tourists annually by 2020.

The ministry has also started work on developing specific and exclusive zones for intensive tourism development under its “18 Tourism Zones” plan. The development plan is also targeted at increasing jobs in the travel and tourism sector to 175,000 from last year’s 160,000. It further aims to increase per day spending of tourists to $45 from last year’s $34.93, and increase international airlines’ connectivity to Nepal to 35 from the existing 26 carriers.80 CAAN proposes to develop a five star hotel: The Civil Aviation Authority

of Nepal (CAAN) has submitted a proposal for the construction of a five star rated hotel in its property under a built-own-operate-transfer (BOOT) model. CAAN holds 116 ropanis81 of land in Sinamangal, a prime location within the city, which is currently underutilized. The move is aimed towards facilitating tourism and offering accommodation to travelers at Tribhuvan International Airport.82 The

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Macroeconomic Overview

concept to build an airport hotel under the public private partnership model can create more value for Nepal’s fastgrowing tourism industry and be a big source of revenue for the government.

Bhojpur. Similarly, funds have been allocated towards installing necessary equipments in Talcha airport in Mugu, Simikot airport in Humla and Tenzing Hillary airport in Lukla.

Budget allocation, programs for tourism sector: Under the 2013-14

The Government has made mandatory provisions for the employees of public corporations and employees working in ‘A’ and ‘B’ class financial institutions running in profit to go for internal tourism on the expenses of the respective institutions. Similarly, the government has set aside budget to develop necessary infrastructure in Lo Manthang of Mustang as a part of its preparation to include Lo Manthang in UNESCO World Heritage list.

Besides these, the government has allocated Rs 130 million for renovation and conservation of religious and cultural sites of archaeological importance. It has set aside another NPR 430 million for strengthening

budget, the government has allocated NPR 630 million to develop eco friendly tourism destinations and exploration of new trekking trials in various parts of the country. It has allocated funds to develop infrastructures in Shreeantu in Ilam, Tistung in Makwanpur, Dhorpatan in mid western region, Ranimahal in Palpa, Rara in Mugu and Khaptad, Ramaroshan and Chisapani area in the far western region. Also, it has allocated NPR 1.81 billion for feasibility studies, construction, upgradation and land acquisitions for airports in Tikapur, Dolpa, Rukum, Ilam, Lamidanda and

cultural academy and museums in different parts of the country.83 Alpine Air to operate flights to the UK: Alpine Air has entered into an agreement with Net Airways, a UK based company, to operate international flights from Nepal to the United Kingdom. Alpine Air announced it would start operating its UK flight with an Airbus A320-200 aircraft; the airline plans to add a second aircraft within three months of starting its maiden flight.

Alpine Air has already received permission from the Ministry of Culture, Tourism and Civil Aviation (MoCTCA) to operate flights to destinations like New Delhi, Mumbai, Dhaka, Bangkok, Kuala Lumpur, Guangzhou, Doha, Singapore and Bahrain. The company has also plans to start direct flights to London once they obtain permissions from MoCTCA.84

Macroeconomic Outlook The agriculture sector has seen a positive development this monsoon season compared to the same period in the previous year. Along with the increase in rainfall, budget, and fertilizer supply, the output of agriculture sector is expected to increase this fiscal year. The sector also awaits insurance companies to dive into the agro insurance to insure crops, and banks to further increase lending, which will support the development of the agriculture sector.

In the education sector, the percentage of students nation-wide who made it through the School Leaving Certificate examination, the socalled “Iron Gate”, was dismal at 41.5%, an eight year low. This, despite the budget allocated to the education sector having been doubled over the past five years. The drop in success rates has also been attributed to the numerous strikes and protests taking place in the education sector. Academics and experts alike are, therefore, questioning the education system regarding its effectiveness in educating the youth.

In terms of energy, without the ability to adjust petroleum prices in Nepal with that of the international market, the losses of Nepal Oil Corporation (NOC) will not be curbed. In addition, with strong lobbying of petroleum dealers, the government from time to time bows down to the pressure and increases their commission rates which again adds to

the mounting losses. Nonetheless, inefficient management has also led to mounting losses. NOC will continue to be a loss making entity unless policy intervention on a macro level is introduced to stop the monopoly of NOC and create a competitive environment.

On a positive note, with the passing of the budget for FY 2013-14, Independent Power Producers (IPPs) feels that the government has finally shown seriousness towards the energy sector. Construction of transmission lines in a speedy manner through allocation of budget will provide relief to IPPs. The government is also initiating involvement of cooperatives in the energy sector. With the onset of the monsoon season, the load shedding hours have reduced. However, for a long term sustainable solution, resource mobilization to fund hydropower projects will be key.

The introduction of the foreign aid management information system through the Aid Management Platform is a positive step towards ensuring aid effectiveness. Furthermore, its integration with the Budget and Financial Information System under the Ministry of Finance will facilitate the process of making the mobilization and use of aid more transparent and accountable, allowing for tracking of budget and expenditure details. The new budget for the FY 2013-14 aims at gradu-

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Macroeconomic Overview

ating Nepal from a Least Developed Country to that of a developing country by 2022; however, whether concrete steps are taken to arrive at this goal is yet to be seen.

Despite sluggish economic growth and an extended political transition, Nepal has still made noteworthy progress in terms of the health indicators for the Millennium Development Goals (MDG), particularly MDG 5, i.e. to improve maternity health, with improvements in the under-five infant mortality rates (MDG 4) and combating of HIV/AIDS, malaria and other diseases (MDG 6). However, there are still many problems in terms of service delivery and quality, particularly in the rural and far reaching areas where health centers and health posts are devoid of doctors and even the most basic of medical supplies due to budget crunch and heavy rainfall. In another instance, the much acclaimed telemedicine services, touted as the harbinger of specialized health services to the country’s rural populace, has failed miserably, thanks to lack of reliable power supply, internet connectivity and skilled health workers. If the government wants its health care policies to work, it needs to look into these issues before announcing yet another “free” health care services for the poor.

Meanwhile, though the Department of Land Reforms and Management registered a growth of 11.67% in land registration fees, this growth is considered very nominal keeping in mind most of the districts increase valuation of land by almost 10% each year, thus contributing to an increase in registration fee collection. Hence, this increase does not necessarily mean the sector is witnessing a growth in transaction. Sale of apartments and bungalows has been at a snail’s pace, primarily because the prices quoted by developers are way above the purchasing capacity of the general public. As per Nepal Land and Housing Developers Association, there are approximately 4,000 unsold apartment units with a total investment of NPR 100 billion (USD 1.05 billion).

Since the last couple of years, development agenda has not been the government’s priority due to political instability. This year’s budget has given due priority for big infrastructure development projects, such as roads, hydropower plants and bridges, which are key to the country’s economic development. However, the Finance Ministry’s plan to start the construction of the railway project with such a meager budget is irrational.

With the country witnessing a continuous fall in its major exportable items, the government is finally planning to revise the Nepal Trade Integration Strategy (NTIS) list 2010 this year. Trade experts have been lobbying with the government to enlist carpets, readymade garments, woodcrafts and stone crafts among the NTIS priority products, which have been excluded from the NTIS list thus far. Similarly, exports of natural honey, silver jewelry, woolen products, essential oils and handmade paper and paper products, which have been identified as exportable goods in the NTIS, have also not been able to generate

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| docking nepal’s economic analysis

expected revenues and exports of these items have been witnessing a negative growth.

The government has to play the role of a catalyst to create an enabling trading environment, which is crucial for the success of exporters. It also becomes imperative to convert the country’s comparative advantages into competitive advantages.

The dependence on remittance earnings is apparent through the size and increase of remittance inflows over the years. Nepal’s remittance equals trade deficit as a share to the GDP of Nepal. The growing importance is also evident through the mushrooming of remittance agents throughout the country. While there is difference in opinions regarding the dependence on remittance, its importance to the economy cannot be undermined. Apart from direct contribution to household income, remittance also contributes to the expansion of non agricultural incomes through spillover effects to the local economy. Almost 18% of the poverty reduction came from people moving out of jobs in agriculture to taking unskilled wage jobs in non agriculture or finding self employment in the trade sector.85 Nonetheless, the key is better utilization of remittance inflows in the productive sector.

The foreign employment bond has been a positive step, but lack of proper marketing has not led to desired results. The next time around, the government needs to ensure proper dissemination of information regarding such opportunities to the target segment in order to ensure successful implementation.

While the telecom sector recorded an unprecedented growth, this growth in tele-density is largely driven by the rise in the number of mobile phone service users. Of the total users, 18.57 million are the users of cellular phone service.86 The growth can also be attributed to the rapid expansion of service network by telecom companies, growing disposable income (remittance), cheaper technology and, to some extent, competition.

With the annual tourist inflow into the country witnessing a decrease of 15% in the first seven months of 2013, the Ministry of Culture, Tourism and Civil Aviation has accorded high priority to infrastructure development, conservation of national heritage sites, and promotion of home-stay and village tourism. This initiative is in line with the ministry’s “Vision 2020”, a tourism perspective plan that aims to bring in 2 million foreign tourists annually by 2020.

The ministry has also started work on developing specific and exclusive zones for intensive tourism development under its “18 Tourism Zones” plan. Likewise, Nepal Tourism Board has also urged the tourism associations to develop special packages for domestic tourists. The government, through its recent budget, has made a mandatory provision for the employees of profit making public corporations and ‘A’ and ‘B’ class financial institutions to go for internal tourism at company expense.

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Macroeconomic Overview

Review

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R ev i e w

Budget – FY 2013/14

The transitional government has announced a full budget of NPR 517. billion (USD 5.43 billion) on time for the fiscal year 2013-14, an increment of 27.7% as compared with the previous fiscal year’s budget.

Key Highlights of the budget • The government considers the private sector as a key vehicle of economic growth, and has continued to emphasize on public, private and cooperatives sectors for the overall economic growth.

Figure 13: Usage of Fund – FY 2013-14

Figure 14: Sources of Fund – FY 2013-14

• The budget has given utmost priority to energy, infrastructure development and the upcoming Constituent Assembly (CA) election.

• As per the budget, the major challenges of the economy are: low economic growth, inflation, import based production structure, contraction in labor market, lack of physical infrastructure and cost competitiveness, and weak institutional capacity and good governance.

• Budget has also taken into consideration the objective of transforming Nepal into a developing country by 2022.

The size of the annual budget has been growing at a Cumulative Average Growth

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| docking nepal’s economic analysis

Source: Ministry of Finance Source: Ministry of Finance

Rate (CAGR) of 16.1% in the past five years (see Figure 15: Year on Year Budget Size).

For the fiscal year 2013-14, the government has allocated NPR 353.42 billion (USD 3.70 billion), i.e. 68.3% of

budget, for recurrent expenditure while it has only allocated 85.1 billion (USD 894 million), i.e. 16.5% of budget, for capital expenditure. Comparing the past five years’ figures, it is clear that the allocation for recurrent expenditure is rising over the years while the allocation for capital

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Review

Figure 15: Year on Year Budget Size

Source: Ministry of Finance

Table 8: Usage of funds over the years FY 2009/10 S.N.

FY 2010/11

FY 2011/12

FY 2012/13

FY 2013/14

%

%

%

%

Usage of Fund

%

1

Recurrent Expenditure

56.14%

56.3%

69.3%

68.9%

68.3%

2

Capital Expenditure

37.19%

38.3%

18.9%

16.3%

16.5%

3

Financing

0.00%

0.0%

6.6%

14.7%

15.2%

4

Principal Repayment

6.67%

5.4%

5.3%

FY 2010/11

FY 2011/12

FY 2012/13

FY 2013/14

%

%

%

%

Source: Ministry of Finance

Table 9: Sources of fund over the years FY 2009/10 S.N.

Usage of Fund

%

1

Revenue

56.49%

64.1%

62.8%

72%

68.5%

2

Foreign Grant

19.65%

19.3%

18.2%

12%

13.4%

3

Internal Borrowing

10.53%

10.0%

9.7%

9%

8.5%

4

Foreign Loan

7.72%

6.6%

7.7%

6%

8.4%

5

Repayment of Principal

5.61%

1.5%

1%

1.1%

Source: Ministry of Finance

expenditure is shrinking. In the fiscal year 2009-10, the recurrent expenditure was 56.14% of the total budget while the capital expenditure was 37.19% (see Table 8: Usage of funds over the years).

Similarly, for the fiscal year 2013-14, the government plans to collect NPR 354.5 (USD 3.72 billion), i.e. 68.5%, through revenue collection; NPR 69.54(USD 731 million), i.e. 13.4%, through foreign grant; NPR 44 billion (USD 462 billion), i.e. 8.5%, through internal borrowing; and NPR 43.7 billion (USD 459 billion), i.e. 8.4%, through foreign loan. On a positive side, looking at the five year trend (see Table 9: Sources of fund over the years), the government revenue mobilization has been on an upper trend while the government reliance on foreign grants is decreasing.

However, the government reliance on foreign loan has slightly increased for the current fiscal year 2013-14.

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outlook After the Constituent Assembly election in the year 2008, only twice the full budget has been presented on time. To make the situation even worse, for the first time in the sixty year’s budget history of Nepal, the government was unable to bring a full-fledged budget even after the lapse of eight months during the previous fiscal year 2012-13.The above points clearly reflects how the political turmoil has affected our national economic growth in the recent years.

Year after year we have fallen short to achieve our economic growth target by a large margin largely due to poor implementation of plans and programs. Achieving the target economic growth and inflation is highly dependent on how the government expedites its programs and plans effectively in the days ahead; otherwise, it will be a continuation of yearly formality only to make stakeholders happy in papers. As per the cash flow data available up to July 5, 2013, the total government expenditure increased only by 2.7% amounting to NPR 286.35 billion (USD 3.1 billion) as compared to increase of 15.8% in the previous fiscal year. As a result of low government expenditure, at the end of June 15, 2013, the government had NPR 44.51 billion (USD 467 million) with the central bank which reflects poor government expenditure during the fiscal year 2013-14.

The government has allocated 68.3% of the total budget for recurrent expenditure, which is almost equal to the total expected government revenue during the year. This indicates the revenue mobilized by the government is mopped entirely by recurrent expenditures. To expedite economic growth, the government should emphasize on increasing capital expenditure. However, the government seems to be struggling to meet an ever increasing recurrent expenditure. Even though the size of the budget has increased over the years, the allocation of funds for capital expenditure is very disappointing, the government had allocated more than NPR 106 billion (USD 1.1 billion), i.e. 37.19% of budget, for

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| docking nepal’s economic analysis

capital expenditure during the fiscal year 2009-10.

However, after five years, the allocation of funds for capital expenditure is only NPR 85.1 billion (USD 894 million), which indicates diminishing capital investments to expedite economic growth.

Moreover, the current government mechanism will neither help in increasing capital expenditure nor will it help to improve the productivity of government expenditure. On a positive note, amidst weak implementation of allocated budget in the previous fiscal year, the government has outlined its plan to expedite spending this fiscal year.

After getting less importance in the recent years, the private sector has regained highest priority in this year’s fiscal policy. The government seems to realize that the private sector is the engine for economic growth. However, as highlighted above, effective and timely implementation of plans and programs is the key for harnessing the potential of the private sector to aid economic growth; otherwise it will only be a yearly ritual to give priority to specific sector without strong foundations.

The government’s announcement to formulate budget management and accountability related law to ensure implementation, transparency, responsible and result oriented practices is a laudable step. Such provisions can help to bring in adequate check and balance system for the effective implementation of the budget in the days ahead.

Lastly, since the budget estimates and projections are based on economic and other parameters, if the outlook were to differ from the presented in the budget, the revenue and expenses estimates and projections would also change. Since our macroeconomic indicators are not stable with higher degree of uncertainty, the budget is highly vulnerable to such risks in the future.

docking nepal’s economic analysis

R ev i e w

Financial Markets The monetary policy for the fiscal year is focused on improving credit flow to agriculture and industrial sector to improve the economic growth rate.

Monetary Policy 2013-14

Despite numerous favorable macroeconomic indicators, the economy failed to achieve desired economic growth rate of 5.5% largely due to a sluggish performance of agriculture and industrial sector during the FY 2012-13. Moreover, high pressure on prices was another major challenge during the fiscal year coupled with mounting trade deficit and devaluation of Nepali rupees. However, the economic performance of the FY 2012-13 in comparison with the previous fiscal years can be considered satisfactory.

Preliminary estimations of the Central Bureau of Statistics (CBS) show that GDP grew by 3.6 % in the FY 2012-13, against the anticipated growth rate of 5.5%, the economy had grown by 4.5% in FY 2011-12. Similarly, as per the preliminary report, the agriculture and non-agriculture sector grew by 1.3% and 5% respectively as compared to 5% and 4.2 % the previous year.

Likewise, industry and service sub-

Table 10: Key Indicators Data Categories

Units

FY 2012-13

FY 2013-14

Forecasted

Actual (Preliminary Estimation)

Forecasted

GDP Growth Rate

%

5.5

3.6

5.5

Inflation-CPI

%

7.5

9.9

8

Broader Money

%

15

16

16

Domestic Credit Growth Rate

%

16

17.1

17.1

Credit to public sector

%

15.8

5.8

12.3

Credit to Private Sector

%

16

19.4

18

Deposit Growth Rate

%

15.1

16

NA

Balance of Payment (BOP)

NPR billion

113.22

52.69

NA Source: Nepal Rastra Bank

sectors are estimated to grow by 1.6% and 6% respectively as compared to 3% and 4.5% the previous year.

To aid the economic growth rate of 5.5% targeted by the fiscal policy, the monetary policy for the fiscal year

has adopted a slightly flexible policy stance contrary to a tighter monetary policy last fiscal year. Moreover, the monetary policy is focused on improving credit flow to agriculture and industrial sector to improve the economic growth rate.

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Review

Key Targets

• To achieve an economic growth rate of 5.5% and control inflation rate within 8%.

• To maintain a minimum foreign currency reserve sufficient for financing merchandise and service imports of 8 months.

• The growth rate of broad money to be maintained at about 16%.

• Domestic credit is expected to increase by 17.1%.

• Bank and Financial Institutions (BFIs) credit to private sector is expected to grow by 18% and to the government by 12.3%. And, the private sector credit will be encouraged to flow towards productive areas as much as possible.

Key Instruments

• The base rate will be gradually implemented to other financial institutions. From last fiscal year the base rate was implemented in commercial banks.

• Standing Liquidity Facility (SLF) provided to BFIs will be continued.

• To encourage investments in productive sectors, general refinance rate has been decreased by 1%; o Agriculture and Hydropower at 5% from 6% o Other specified productive sectors at 5% from 6% o Fisheries and Livestock at 5% from 6%

• To aid economic growth and control inflation, the bank rate will be continued to be kept at 8%.

Moreover, BFIs can only charge the consumers up to a maximum of 9% for above types of loans.

• To increase money supply, the “Cash Reserve Ratio” (CRR) has been decreased by 0.5 basis points, commercial banks, development banks and finance companies will have to maintain CRR at 5%, 4.5% and 4% respectively.

• Commercial banks, development banks and finance companies need to increase its “deprived sector” portfolio to 4.5%, 4% and 3.5% respectively by the end of FY 2013-14. Demand for such lending will be increased by increasing credit limit, expanding credit base and simplifying existing procedure.

• Statutory Liquidity Ratio (SLR) to be maintained by BFIs has been revised. Commercial banks, development banks and finance companies will be required to maintain 12%, 9% and 8% respectively.

32

• Considering the comfortable liquidity situation, the Repo and Reverse repo bidding period has decreased to 21 days from 28 days.

Last year it was reduced to 28 from 45 days.

| docking nepal’s economic analysis

• Special refinancing rate for sick industries, small and cottage industries, export oriented business, enterprises operated by

women, foreign employment of specified class of people and small enterprises operated by specified community will be reduced to 1% from existing 1.5%. BFIs can charge a maximum of 4.5% interest on such loans from clients.

• A provision will be made to implement action plan submitted by commercial banks to the NRB to maintain 20% of total credit to productive sector by Mid-July 2015. Under this, commercial banks will have to maintain at least 12% credit flow to agriculture and energy sector.

Key points on Financial sector reform, regulation and supervision

• Financial Sector Development Strategy will be formulated in coordination with the government and other concerned stakeholders.

• A moratorium on accepting application for opening ‘ A’, ‘ B’ and ‘C’ class financial institution has been continued while providing license to ‘D’ class micro finance institutions based on certain requirements.

• A provision will be made to bring an average spread rate between credit and deposit of ‘A’, ‘B’ and ‘C’ class financial institution to 5% within a certain time period.

• Financial service will be made consumer friendly by making provision of not to differentiate interest rate above certain percentage on

docking nepal’s economic analysis

Review

similar types of credit and deposits

by BFIs, and by revising guidelines set for uniformity in commission, charges, penalties and fees including service charges for loan repayments before maturities.

• For commercial banks not maintaining prescribed liquidity ratio, a provision of Prompt Corrective Action will be made based on liquidity.

• The merger process will be simplified to encourage merger BFIS. Likewise, an acquisition manual will be developed and implemented.

• For strengthening the capital of BFIs, the provision will be made for ‘A”, ‘B’ and ‘C’ class banks to maintain the prescribed minimum paid-up capital compulsorily by mid-July 2014.

• A provision of stress testing is made mandatory for national level financial companies too.

• In order to protect loan, a provision of considering loan paying capacity such as income and cash flow as a main basis besides existing movable and immovable property will be introduced.

• A provision of maintaining institutional deposits below 60% within a certain period by commercial banks will be introduced.

• To enhance transparency and good governance in banking business by maintaining clear differences between bankers and entrepreneurs, necessary arrangement will be undertaken to avoid the conflict of interest which may arise when board

member, chief executive officer or other individuals in management of BFIs take loan from other BFIs for their own company.

Commercial Bank Performance Analysis

The financial performance of commercial banks during the FY 2012-13 has been way above expectations. As per the published unaudited data, of the 31 commercial banks, 28 banks saw their net profit increase; similarly, 28 banks saw their operating profit increase as compared with the previous fiscal year. Likewise, during

the FY 2012-13, the operating profit margin of commercial banks grew by a staggering 60.9% whereas the net profit margin has grown by 40.8% as compared to the previous fiscal year. The commercial banks were able to increase its deposit base by 11.5%and Loans and Advances by 6.2% during the fourth quarter of the FY 2012-13. Moreover, the overall cost of fund of commercial banks decreased by 2.05 points to 6% from 8.05% during the fiscal year. Likewise, the average base rate of commercial banks stood at 9.82% during the year, the highest being 12.78% of Agriculture Development Bank and the lowest being 6.34% of Standard Chartered Bank.

outlook To aid economic growth and contain inflation, the monetary policy has rightly adopted a slightly flexible monetary stance. Decreasing the Credit Reserve Ratio (CRR), general refinancing rate and special refinancing rate to productive sectors indicate central bank’s efforts to support the fiscal policy to enhance investments to the productive sectors by increasing the money supply to the productive sectors.

The average net profitability of commercial banks grew by 40.8% during the FY 2012-13 largely due to higher spread rate between credit and deposit. The central bank plans to bring average spread rate between credit and deposit of ‘A’, ‘B’ and ‘C’ class financial institution to 5% within a certain time period. Such provision can expect to slash both deposit and lending rates in near future; moreover, it can affect

the profitability of BFIs who are not efficient in managing their portfolio.

Likewise, the central bank plans to simplify the existing merger process to encourage merger and also develop acquisition manual and implement during the fiscal year.

Introducing the acquisition manual is the right approach and it can expedite the current merger drive in the future as it would facilitate larger or lead banks to acquire smaller BFIs. Various provisions introduced in the monetary policy, if implemented effectively, can ensure greater risk absorption capacity of BFIs, greater transparency and accountability in the banking system, opportunity to regain confidence of public over banking sector, and create healthy competition amongst BFIs which can leads to maintain economic and financial stability.

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243.7

376.8

185.4

276.0

235.6

200.9

176.1

168.4

147.0

231.2

160.2

247.9

160.4

169.4

161.9

241.8

210.2

234.0

201.5

200.0

200.0

200.0

200.0

233.0

200.0

200.0

108.0

201.6

Nabil Bank

Nepal Investment

Standard Chartered

Himalayan Bank

Nepal SBI Bank

Nepal Bangladesh

Everest Bank

Bank of Kathmandu

NCC Bank

NIC Asia Bank

Lumbini Bank

Machhapuchchhre

Kumari Bank

Laxmi Bank

Siddhartha Bank

Global IME Bank

Citizens Bank

Prime Commercial

Sunrise Bank

Grand Bank

NMB Bank

KIST Bank

Janata Bank

Mega Bank

Commerz & Trust

Civil Bank

Century Bank

Sanima Bank

963.7

Agriculture Dev. Bank

7,965.2

858.9

Rastriya Banijya Bank

Total

371.6

Nepal Bank

Public Sector Banks

Paid-up Capital

Bank

3,130.2

575.8

-710.6

-388.9

41.9

14.3

15.3

9.7

33.2

25.8

15.4

62.4

36.1

45.5

73.0

56.7

93.1

105.4

105.7

106.4

31.7

58.1

254.5

82.4

163.3

387.5

153.5

161.8

289.6

350.5

427.6

453.6

Reserve & Surplus

5,439.7

9,109.7

6,298.8

1,778.3

1,139.6

1,563.3

996.1

1,253.3

1,354.6

2,109.3

2,218.5

1,932.2

2,327.1

2,881.4

2,272.5

3,411.1

2,839.2

2,596.1

2,531.9

2,713.8

1,081.7

3,990.9

2,165.0

2,770.1

5,772.0

1,784.5

5,892.0

5,307.2

3,946.6

6,242.8

91,546.3 102,071.1

4,723.4

8,576.3

5,706.8

1,617.8

935.5

1,153.6

896.3

1,284.2

1,200.8

2,102.0

1,964.1

1,648.2

2,217.1

2,567.0

2,142.1

3,033.5

2,723.2

2,420.8

2,392.4

2,474.0

966.0

2,336.2

1,853.5

2,415.3

5,129.3

1,470.8

5,366.7

4,791.6

3,825.5

5,852.5

6,351.8

4 QTR

3 QTR

5,759.8

FY 12/13

FY 12/13

Deposit

11.5

15.2

6.2

10.4

9.9

21.8

35.5

11.1

-2.4

12.8

0.3

13.0

17.2

5.0

12.2

6.1

12.4

4.3

7.2

5.8

9.7

12.0

70.8

16.8

14.7

12.5

21.3

9.8

10.8

3.2

6.7

10.3

"% Change "

70,404.9

4,684.3

4,509.6

3,520.8

1,420.2

821.4

1,053.6

847.0

1,161.9

1,111.5

1,713.0

1,589.4

1,403.6

1,779.0

2,139.2

1,806.4

2,490.7

2,221.0

1,915.0

1,976.2

2,006.9

898.2

1,881.8

1,591.5

2,162.6

4,185.4

1,281.4

2,855.0

4,018.0

2,157.4

4,692.9

4,510.0

3 QTR

FY 12/13

74,794.6

4,977.0

4,904.4

3,785.5

1,509.3

908.7

1,236.7

903.1

1,146.3

1,207.6

1,682.6

1,649.1

1,452.6

1,773.1

2,121.6

1,794.1

2,699.2

2,311.1

2,010.0

2,011.9

2,164.8

917.5

3,156.0

1,601.3

2,304.9

4,419.7

1,313.8

2,878.8

4,105.7

2,313.8

4,770.0

4,764.6

4 QTR

FY 12/13

6.2

6.2

8.8

7.5

6.3

10.6

17.4

6.6

-1.3

8.6

-1.8

3.8

3.5

-0.3

-0.8

-0.7

8.4

4.1

5.0

1.8

7.9

2.1

67.7

0.6

6.6

5.6

2.5

0.8

2.2

7.3

1.6

5.6

% Change

Loans and Advances

1,485.0

-10.3

2.5

-21.0

19.0

0.3

9.0

0.8

11.3

9.2

11.4

6.0

20.7

0.5

40.9

26.5

32.1

51.0

55.4

42.9

10.9

22.4

61.5

12.7

88.3

153.8

36.9

67.4

151.6

169.4

135.7

266.3

4 QTR

FY 11/12

2,389.7

133.5

79.6

36.1

45.9

10.3

18.1

9.2

27.9

19.8

-7.4

47.9

26.9

34.4

66.7

58.1

73.3

79.3

68.3

46.4

13.5

21.1

93.7

46.0

89.0

230.3

56.1

117.5

132.4

186.2

226.6

303.1

4 QTR

60.9

85.7

3,095.6

271.9

141.8

3,115.6

102.0

1,065.8

147.6

114.1

-164.9

698.7

30.1

6,641.2

62.9

119.0

128.5

55.4

23.3

8.1

24.6

-5.9

52.3

261.0

0.8

49.7

52.2

74.4

-12.6

9.9

67.0

13.8

1,432.4

184.0

118.4

17.6

12.2

0.3

2.7

1.5

7.2

5.7

10.0

5.5

18.3

11.2

2,016.6

226.0

151.7

79.2

30.5

6.8

12.1

5.9

17.7

19.7

-8.9

36.0

20.1

31.9

48.0

40.0

22.5 26.9

55.2

49.0

45.9

29.2

14.8

15.0

62.0

37.1

61.7

147.1

59.1

77.6

102.4

121.8

199.2

223.2

4 QTR

FY 12/13

Net Profit

26.5

33.0

35.6

27.6

3.8

19.3

39.2

17.8

60.8

109.1

80.9

48.0

95.9

116.9

103.9

170.0

4 QTR

FY 12/13 % Change FY 11/12

Operating Profit

40.8

22.8

28.1

349.0

150.5

2,231.0

345.6

288.1

146.9

244.3

-189.2

550.4

9.7

185.2

78.1

77.8

108.2

48.4

28.9

5.8

287.4

-22.7

58.3

108.8

1.5

34.9

-27.0

61.6

6.8

4.2

91.6

31.2

% Change

2.13

8.98

7.27

5.58

0.48

0.00

0.00

0.00

0.49

0.00

3.94

2.45

1.28

3.52

0.76

2.01

1.54

1.52

0.62

2.21

2.84

0.47

0.73

2.73

2.30

0.84

4.29

0.54

2.09

0.78

3.32

2.33

4 QTR

2.31

5.72

5.31

4.53

0.30

0.49

0.50

1.33

2.27

0.23

6.59

1.80

3.52

3.74

2.23

2.02

1.64

2.31

1.26

2.91

2.83

0.86

2.32

2.60

1.50

0.62

3.14

0.37

2.19

0,77

1.91

2.13

4 QTR

FY 12/13

NPL (%) FY 11/12

Table 11: fourth Quarter Results of Commercial Banks – Unaudited FY 2012-13 (NPR in ten millions)

8.05

6.81

4.79

5.03

9.91

10.44

10.52

9.54

8.49

9.30

8.41

9.02

8.93

9.34

9.61

7.74

8.50

8.88

8.02

8.43

9.84

9.24

8.87

8.50

7.00

6.66

7.29

5.49

6.94

3.44

7.81

6.85

4 QTR

FY 11/12

6.00

5.46

3.61

4.52

7.24

7.44

8.05

7.72

5.49

7.01

6.45

6.14

7.43

6.49

6.99

6.72

6.64

6.34

6.62

6.61

6.58

6.52

6.88

6.58

5.21

4.53

5.39

4.44

4.81

2.35

5.44

4.36

4 QTR

FY 12/13

-2.05

-1.35

-1.18

-0.51

-2.67

-3.00

-2.47

-1.82

-3.00

-2.29

-1.96

-2.88

-1.50

-2.85

-2.62

-1.02

-1.86

-2.54

-1.40

-1.82

-3.26

-2.72

-1.99

-1.92

-1.79

-2.13

-1.90

-1.05

-2.13

-1.09

-2.37

-2.49

Change

Cost of Fund (LCY)

9.82

12.78

6.76

9.40

10.04

11.45

12.07

11.91

10.33

10.95

10.09

9.55

10.31

10.29

10.08

9.72

9.98

10.25

10.12

10.36

10.26

10.40

9.59

9.91

8.75

7.16

10.65

9.86

9.01

6.34

9.16

7.04

4 QTR

FY 12/13

BASE RATE %

docking nepal’s economic analysis

R ev i e w

Capital Markets

The Nepal Stock Exchange (NEPSE) Index (+26.8%) continued with its upward momentum at the end of the first eleven months of FY 2012-13. The Index gained valuable 104.62 points to reach 494.34 points during the review period.

Secondary Market: Market performance in the FY 2012-13

The fiscal year 2012-13 proved to be a successful year for the capital market as the country’s sole secondary market, i.e. Nepal Stock Exchange (NEPSE) Index (+32.98%) gained 128.55 points to close the fiscal year on 518.27 points. The secondary market had started the fiscal year 2012-13 on a positive note as it had managed to gain valuable 27.2 points during the fiscal year 2011-12 after three years of continuous downward momentum (see Table 12: NEPSE Index performance over the years).

The total annual market turnover increased by a staggering 101.3% during the fiscal year amounting to NPR 20.71 billion (USD 217 million) indicating improved investors’ confidence during the year.

The Insurance sector (+88.2%) was the biggest gainer during the year as

investors were lured by bonus shares declared by the insurance companies and in anticipation of additional bonus shares in the future (see Table 13: Key market indicators). As per the directive issued by the Insurance Board

(IB), life insurance companies need to increase their paid-up capital to NPR 500 million (USD 5.25 million) from existing NPR 250 million(USD 2.62 million) and non-life insurance companies need to increase their paid-up

Figure 16: NEPSE Index performance over the years

Source: Nepal Stock Exchange

NEFPOrt issue 13 JULY 2013

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35

Review

Table 12: Key market indicators FY 201112

FY 201213

% Change

NEPSE Index

389.72

518.27

33.0%

Total Turnover

10.29

20.71

101.3%

Commercial Bank Index

358.57

505.48

41.0%

Development Bank Index

245.53

257.85

5.0%

Hydropower Index

683.56

1080.92

58.1%

Finance Index

265.66

253.67

-4.5%

Insurance Index

497.86

936.75

88.2%

Others Index

590.98

700.22

18.5%

Hotels Index

489.04

657.49

34.4%

Indicators

( In NPR billion)

Source: NEPSE

capital to NPR 250 million (USD 2.62 million) from existing NPR 100 million (USD 1.05 million) by the end of fiscal year 2012-13.

Similarly, the Hydropower sector (+58.1%) was the second highest gainer triggered by the increment of share prices of key hydropower companies such as Chilime Hydropower (+Rs.281) and Butwal Power Company (+Rs.253) during the year.

Amongst the Banks and Financial Institutions (BFIs) stocks which dominate almost 80% of the listed companies at the NEPSE, only the Commercial Banking Index (+41%) was able to draw good results during the year. The Development Banking Index (+5%) gained marginally while the Finance sub-index (-4.5%) continued to deteriorate further, the index had decreased by 12.11% during the previous fiscal year. The Hotels Index (+34.4%) also ended on green zone while the Others Index (18.5%) was also able to entice investors as share price of Nepal Telecom appreciated.

Figure 17: NEPSE Index Performance in the FY 2012-13

36

| docking nepal’s economic analysis

Primary Market

The fiscal year 2012-13 was also encouraging for the capital market.

The capital market witnessed primary offering worth NPR 3.27 billion (USD 34.3 million) of 25 companies during the year (see Table 14: Primary offering during the FY 2012-13). Similarly, the market witnessed primary offering worth NPR 1 billion (USD 10.5 million) of two mutual fund schemes during the year.

Key provisions in the Budget

• Stock exchange transaction will be made simple and easy to widen the participation in capital market.

Transaction of Nepal Stock Exchange will be operated through electronic means.

docking nepal’s economic analysis

Review

Table 13: Primary Offering during the FY 2012-13 Primary offering (NPR Crores)

Company 1

Bright Development Bank

4.2

3

Civic Development Bank

1.2

4

Civil Bank Ltd

80.0

5

Commerz and Trust Bank Ltd

60.0

6

Gaumukhee Bikas Bank

1.2

7

Hamro Bikas Bank Limited

1.8

8

Innovative Development Bank Ltd

3.4

9

International Development Bank Ltd

19.2

10

Jebil's Finance Limited

9.8

11

Jhimruk Bikas Bank

1.6

12

Kankrebihar Bikas Bank

1.2

13

Khandabari Development Bank

1.5

14

Mega bank

69.9

15

Mission Development Bank

3.0

16

Namaste Bittiya Sanstha

1.0

17

Nepal Community Development Bank

3.0

18

NLG Insurance Company Limited

6.8

20

Pashchimanchal Grameen Bikas Bank

3.4

21

Reliance Finance

6.0

22

Rural and Micro Finance Development Center (RMDC)

28.0

23

Sana Kishan Bikas Bank Limited

6.0

24

Sanima Mai Hydro power limited (Local Residents Only)

10.6

25

Sindhu Bikas Bank Limited

4.9

Mutual Fund Schemes 26

Nabil Balance Fund 1

60.0

27

Siddhartha Investment Growth Scheme 1

40.0

Total

427.6

• Institutional and Non-resident Nepali’s investment will be attracted in the capital market.

• For long term investment in the large scale infrastructure projects, necessary arrangements will be made to issue bond in local currency for international agencies that have high ranking credit rating.

• Necessary arrangements will be made to regulate commodity market through Securities Board of Nepal (SEBON).

outlook The market has been hovering between 490 to 520 points for some time now which is also a long term support level. Though the third quarterly results of listed companies, especially BFIs, have been encouraging, it has failed to attract investors as they seem to be in a cautious and dubious mode and are in wait and see position. The news about smoother convertibility of promoter shares into public shares also deteriorated general investor’s mood up to some extent as they fear that the secondary market will be flooded by promoter shares, meaning it will increase supply of shares and bring the share prices down. An ideal situation would be to have no differentiation between promoter and public shares for greater market efficiency; moreover, the current changes will not have any immediate short term impact on the market besides some room for speculation as it’s the market which eventually decides the future course.

NEFPOrt issue 13 JULY 2013

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37

Endnotes 1. Prithvi Man Shrestha, “Govt unveils Rs 517.24 billion full budget”, The Kathmandu Post, July 15, 2013. Accessed on 14 August 2013. http:// www.ekantipur.com/2013/07/15/editors-pick/govt-unveils-rs-517.24billion-full-budget/374790.html 2. “Getting cold feet,” Nepali Times, August 9-15, 2013. Accessed on 14 August 2013. http://nepalitimes.com/article/editorial/Editorial-gettingcold,647 3. “10 DIGs, 7 secretaries transferred”, Republica, June 13, 2013.

Accessed on 15 August 2013. http://www.myrepublica.com/portal/index. php?action=news_details&news_id=56150 4. Omair Ahmed, “Bhutan’s second general elections: A big win for democracy”, The Economic Times, July 15, 2013. Accessed on August 13, 2013. http://articles.economictimes.indiatimes.com/2013-07-15/ news/40590704_1_pdp-bhutanese-dpt 5. Paul Farhi, “Washington Post to be sold to Jeff Bezos, the founder of Amazon”, The Washington Post, August 5, 2013. Accessed on August 13, 2013. http://articles.washingtonpost.com/2013-08-05/ national/41085661_1_washington-post-co-jeff-bezos-graham 6. Andrew Leonard, “The iceberg just rescued the Titanic”, Salon, August 6, 2013. Accessed on August 13, 2013. http://www.salon. com/2013/08/06/the_iceberg_just_rescued_the_titanic/ 7. The dollar is enjoying a rare period of strength. How far can the rally go?”, The Economist, July 13, 2013. Accessed on August 14, 2013. http:// www.economist.com/news/finance-and-economics/21581729-dollarenjoying-rare-period-strength-how-far-can-rally-go-green 8. Rebecca Bundhun, “Strong US dollar pushes Indian rupee to all-time low“, The National, June 11, 2013. Accessed on August 14, 2013. http:// www.thenational.ae/business/industry-insights/markets/strong-us-dollarpushes-indian-rupee-to-all-time-low 9. Hiroko Tabuchi, “Economic Expansion Slows Down in Japan,” The New York Times, August 11, 2013. Accessed on August 15, 2013. http://www. nytimes.com/2013/08/12/business/global/economic-expansion-slowsdown-in-japan.html 10. “Agriculture gets Rs 21.4 billion”, The Kathmandu Post, August 2, 2013, http://www.ekantipur.com/the-kathmandu-post/2013/07/14/money/ agriculture-gets-rs-21.40-billion/251184.html 11. “Financial institution wary of agro loans”, The Himalayan Times, August 2, 2013, ”http://thehimalayantimes.com/fullTodays.php?headline=Financ ial+institutions+wary+of+agro+loans&NewsID=381209 12. 1“AIC says fertilizer import amounted to 230K”, The Kathmandu Post, August 2, 2013,http://www.ekantipur.com/the-kathmandupost/2013/07/03/money/aic-says-fertilizer-import-amounted-to-230ktonnes/250766.html 13. Ram Krishna Shrestha “ Fertilizer development policy in Nepal”, The Journal of Agriculture and Environment vol.11 2010, accessed on August 5, 2013, http://www.nepjol.info/index.php/AEJ/article/ viewFile/3660/3141 14. “Insurance cos reluctant to enter farm sector”, The Kathmandu Post, August 2, 2013, http://www.ekantipur.com/the-kathmandupost/2013/06/16/money/insurance-cos-reluctant-to-enter-farmsector/250093.html, 15. “Government approves 50 percent subsidy on animal, crop insurance”, The Kathmandu Post, August 7, 2013, http://epaper.ekantipur.com/ ktpost/showtext.aspx?boxid=125756203&parentid=24626&issueda te=682013

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| docking nepal’s economic analysis

16. “Timely rain boosts paddy plantation across country”, The Kathmandu Post, August 2, 2013, http://www.ekantipur.com/the-kathmandupost/2013/06/28/nation/timely-rain-boosts-paddy-plantation-acrosscountry/250547.html 17. “Career Edufair: Event Grander than expected”, The Kathmandu Post, July 29, 2013, Accessed August 05, 2013, http://www.ekantipur. com/2013/07/29/headlines/Career-Edufair-Event-grander-thanexpected-Organisers/375505/ 18. “Government wakes up to high dropout rate of girls”, The Kathmandu Post, July 16, 2013, Accessed August 05, 2013, http://www.ekantipur. com/the-kathmandu-post/2013/07/16/top-story/govt-wakes-up-to-highdropout-rate-of-girls/251237.html 19. “417 schools open past fiscal year”, The Kathmandu Post, July 13, 2013, Accessed August 05, 2013, http://www.ekantipur.com/the-kathmandupost/2013/07/13/nation/417-schools-open-past-fiscal-year/251130. html 20. “60 private schools operating illegally”, The Kathmandu Post, July 07, 2013, Accessed August 05, 2013, http://www.ekantipur.com/2013/07/08/ national/60-private-schools-operating-illegally/374475.html 21. “4% public schools have set basics”, The Kathmandu Post, July 02, 2013, Accessed August 05, 2013, http://www.ekantipur.com/thekathmandu-post/2013/07/02/nation/4-pc-public-schools-have-setbasics/250699.html 22. “School Level Education”, The Kathmandu Post, June 25, 2013, Accessed August 06, 2013, http://www.ekantipur.com/the-kathmandupost/2013/06/25/top-story/school-level-education/250426.html 23. Nepal Oil Corporation, http://nepaloil.com.np/main/ 24. “Power outage 6 hrs now”, The Kathmandu Post, June 8, 2013, http:// www.ekantipur.com/the-kathmandu-post/2013/06/08/nation/poweroutage-6-hrs-now/249723.html 25. Ashok Thapa, “40 MW power added to national grid in first 8 months this FY”, The Kathmandu Post, July 12, 2013, http://www.ekantipur. com/the-kathmandu-post/2013/07/12/money/40-mw-power-added-tonational-grid-in-first-8-months-this-fy/251113.html 26. Foreign Trade Statistics of Nepal [First eleven months (Shrawan - Jeshtha) of Fiscal Year 2069/70], Trade and Export Promotion Center 27. Public Statement on Income & Expenditure for the Fiscal Year 2013-14, July 14, 2013, Ministry of Finance 28. “Country’s largest hydro in peril”, The Himalayan Times, August 2, 2013, http://thehimalayantimes.com/fullTodays.php?headline=Country%27s+l argest+hydro+in+peril&NewsID=385984 29. “Govt to waive Rs 12b worth of NOC’s loans”, Republica, June 15, 2013, http://www.myrepublica.com/portal/index.php?action=news_ details&news_id=56275 30. Rudra Pangeni, “29 hydro projects get generation license”, Republica, July 9, 2013, http://www.myrepublica.com/portal/index. php?action=news_details&news_id=57564 31. Ashok Thapa, “India’s EXIM Bank approves $155m soft loans for 3 projects”, The Kathmandu Post, June 4, 2013, http://www.ekantipur.com/ the-kathmandu-post/2013/06/04/money/indias-exim-bank-approves155m-soft-loans-for-3-projects/249591.html 32. “Govt scraps hydro-electricity generation licenses worth 11,000 MW”, accessed August 7, 2013, http://www.nepalnews.com/archive/2013/aug/ aug01/news02.php

docking nepal’s economic analysis

33. Ashok Thapa, “NEA to supply up to 56 MW power through dedicated feeders”, The Kathmandu Post, July 24, 2013, http://www.ekantipur.com/ the-kathmandu-post/2013/07/24/money/nea-to-supply-up-to-56-mwpower-through-dedicated-feeders/251578.html 34. Ashok Thapa, “NEA to supply up to 56 MW power through dedicated feeders”, The Kathmandu Post, July 24, 2013, http://www.ekantipur.com/ the-kathmandu-post/2013/07/24/money/nea-to-supply-up-to-56-mwpower-through-dedicated-feeders/251578.html 35. “Government to accept IDA loan, grant for transmission line”, The Kathmandu Post, August 08, 2013, Accessed August 09, 2013, http:// www.ekantipur.com/2013/08/08/headlines/Govt-to-accept-IDA-loangrant-for-transmission-line/376110/ 36. “Japanese Assistance for the Project for Improving Livelihoods through Environmentally Harmonizing Agriculture in the Hill areas of Sindhuli District”, Embassy of Japan, August 05 2013, Accessed on August 08 2013, http://www.np.emb-japan.go.jp/ann/050813.html 37. “WB provides Rs 2.9 billion credit assistance”, The Himalayan Times, August 01 2013, Accessed on August 07 2013, http://thehimalayantimes. com/rssReference.php?headline=WB%20provides%20Rs%202.9%20 billion%20credit%20assistance&NewsID=385691 38. “Japanese Assistance for CA Polls”, The Kathmandu Post, July 24 2013, Accessed August 08 2013, http://www.ekantipur.com/the-kathmandupost/2013/07/24/nation/japanese-assistance-for-ca-polls/251552. html 39. News service, “World Bank provides $207 million for three projects”, 08/07/13, Accessed on 07/08/13, http://www.nepalnews.com/ archive/2013/jul/jul08/news19.php 40. “Switzerland provides 1.39 billion assistance to Nepal”, Republica, July 5, 2013, Accessed August 09, 2013, http://www.myrepublica.com/portal/ index.php?action=news_details&news_id=57335 41. “ADB aid for waste management”, The Himalayan Times, July 03, 2013, Accessed August 09, 2013, http://thehimalayantimes.com/fullTodays.ph p?headline=ADB+aid+for+waste+management&NewsID=382434 42. Post Report, “WB approves $30m loan to Nepal”, 29/07/13, Accessed on 07/08/13, http://www.ekantipur.com/the-kathmandu-post/2013/06/29/ money/wb-approves-30m-loan-to-nepal/250612.html 43. “ADB grants $20 million to help close labor skills gap”, The Himalayan Times, June 27, 2013, Accessed August 09, 2013, http:// thehimalayantimes.com/fullTodays.php?headline=ADB+grants+%2420+ million+to+help+close+labour+skill+gaps&NewsID=381589 44. Post Report, “Finance Ministry launches Aid Management Platform portal”, 21/07/13, Accessed on 07/08/13, http://www.ekantipur.com/ the-kathmandu-post/2013/06/21/money/finance-ministry-launches-aidmanagement-platform-portal/250305.html 45. Gorkhapatra News Service, “Germany provides Rs. 1.75 billion as grant assistance”, 21/07/13, Accessed on 07/08/13, http://trn. gorkhapatraonline.com/index.php/nation/2591-germany-provides-rs-175-billion-as-grant-assistance.html 46. Post Report, “Rs 900 million Swiss aid to Peace Fund”, 17/06/13, Accessed on 07/08/13, http://www.ekantipur.com/the-kathmandupost/2013/06/17/nation/rs-900-million-swiss-aid-to-peace-fund/250106. html 47. “Animals carry two-third of diseases”, The Himalayan Times, July 28, 2013, Accessed on August 01, 2013, http://thehimalayantimes.com/ fullTodays.php?headline=Animals+carry+two-third+of+diseases+&New

sID=385436 48. “Kolti folk reeling under crunch of medicines”, The Himalayan Times, July 05 2013, Accessed on August 01 2013, http://thehimalayantimes. com/fullTodays.php?headline=Kolti+folk+reeling+under+crunch+of+me dicines&NewsID=382679 49. “Combating non-communicable diseases”, The Himalayan Times, July 04 2013, Accessed on August 01 2013, http://thehimalayantimes.com/ fullTodays.php?headline=Combating+noncommunicable+diseases+&N ewsID=382513 50. “Problems in Telemedicine”, Republica, June 25 2013, Accessed on August 01 2013, http://www.myrepublica.com/portal/index. php?action=news_details&news_id=56745 51. “Tough Roads Ahead”, The Himalayan Times, June 16 2013, Accessed on August 01 2013, http://www.thehimalayantimes.com/perspectives/ fullnews.php?headline=Tough+road+ahead&newsid=MjIzMA== 52. “Health insurance plan boon for Banke folks”, The Kathmandu Post, June 09 2013, Accessed on August 01 2013, http://www.ekantipur.com/ the-kathmandu-post/2013/06/08/nation/health-insurance-plan-boon-forbanke-folks/249728.html 53. “Medico-legal criteria for brain death on cards”, The Himalayan, June 08 2013, Accessed on August 01 2013, http://thehimalayantimes.com/ fullTodays.php?headline=Medico-legal+criteria+for+brain+death+on+ca rds&NewsID=379391 54. Government of Nepal, Ministry of Finance ‘Public Statement on Income & Expenditure for the Fiscal Year 2013/14’.

55. “Construction work to begin this week”, The Himalayan Times, July 7, 2013.

56. “Govt, Italian firm sign contract for Melamchi tunnel work”, The Kathmandu Post, July 15, 2013.

57. “GBA to receive additional fund this week”, The Himalayan Times, August 5, 2013.

58. “Govt to revise NTIS 2010 within this year”, The Himalayan Times, July 4, 2013, http://www.thehimalayantimes.com/fullTodays.php?headline=G ovt+to+revise+NTIS+2010+within+this+year&NewsID=382534 59. Nepal Rastra Bank. “Macro-economic Situation (Based on the Eleven Months’ Data of FY 2012/13)”, http://www.nrb.org.np/ 60. “Export of major commodities drops”, The Himalayan Times, July 12, 2013, http://www.thehimalayantimes.com/fullNews.php?headline=Expor t+of+major++commodities+drops+&NewsID=383509 61. Nepal Rastra Bank. “Macro-economic Situation (Based on the Eleven Months’ Data of FY 2012/13)”, http://www.nrb.org.np/ 62. “Small exporters seek ‘Export Trading House”, The Himalayan Times, June 19, 2013, http://www.thehimalayantimes.com/fullNews.php? headline=Small+exporters+seek+’Export+Trading+House’&News ID=380686 63. Department of Land Reform and Management 64. Department of Land Reform and Management 65. Nepal Rastra Bank 66. Current Macroeconomic Situation of Nepal (Based on Eleven Months’ Data of 2012-13), Nepal Rastra Bank 67. Monthly Progress Report for Preapproval Details for Asadh 2070, Department of Foreign Employment 68. Dikshya Singh, “Foreign Employment Bond 2075 unable to meet

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expectations”, The Himalayan Times, July 17, 2013, http://www. thehimalayantimes.com/fullNews.php?headline=Foreign+Employment+ Bond+2075++unable+to+meet+expectations++&NewsID=384141 69. “Rs 1.39 billion Swiss grant for safer labor migration and local governance”, Republica, July 5, 2013, http://www.myrepublica.com/ portal/index.php?action=news_details&news_id=57355 70. “UAE to build satellite cities for migrants”, The Himalayan Times, June 22, 2013, http://www.thehimalayantimes.com/fullNews.php?headline=U AE+to+build+satellite+cities+for+migrants+&NewsID=381053 71. “Nepal ranks sixth in remittance from Qatar”, The Himalayan Times, August 5, 2013, http://m.thehimalayantimes.com/fullNews.php?headline =Nepal+ranks+sixth+in+remittance+from+Qatar&NewsID=356694 72. Nepal Telecommunication Authority, “Management Information System” Published July 2013 73. Nepal Telecommunication Authority, “Management Information System” Published July 2013 74. Nepal Telecommunication Authority, “Management Information System” Published July 2013 75. “NT to add 2.91m phone lines this year”, The Himalayan Times, July 29, 2013 76. Ankit Adhikari, “Anti-VoIP operations ‘good’ thus far, border areas a challenge”, The Kathmandu Post, August 4, 2013 77. Tourist Arrivals Statistics, Nepal Tourism Board, http://welcomenepal. com/promotional/about-us/tourist-arrivals/ 78. “Nepal promoted in North India”, Republica, July 1, 2013, http://www.

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myrepublica.com/portal/index.php?action=news_details&news_ id=57092 79. “Nepal promoted in Chandigarh”, Republica, July 14, 2013, http:// www.myrepublica.com/portal/index.php?action=news_details&news_ id=57750 80. “Budget to Earmark 30% of Tourism Revenue for Local Body”, July 6, 2013, http://www.myrepublica.com/portal/index.php?action=news_ details&news_id=57403 81. “Annual Development Plan targets 1.2 million tourists this fiscal”, The Kathmandu Post, July 28, 2013, http://epaper.ekantipur.com/ ktpost/showtext.aspx?boxid=144835421&parentid=24483&issueda te=2872013 82. 1 ropani equivalent to 5476 square feet 83. “CAAN proposes five-star airport hotel at Sinamangal”, The Kathmandu Post, June 22, 2013, http://epaper.ekantipur.com/ktpost/showtext.aspx? boxid=121336265&parentid=23907&issuedate=2262013 84. Budget Speech 2013-14, Ministry of Finance, www.mof.gov.np 85. “Alpine Air to fly to UK”, Republica, July 27, 2013, http://www. myrepublica.com/portal/index.php?action=news_details&news_ id=58459 86. Nepal Development Update, April 2013, Poverty Reduction and Economic Management, South Asia Region, The World Bank Group 87. Nepal Telecommunication Authority, “Management Information System”, published July 2013

Nepal Economic Forum (NEF) strives to be the premier private-sector led economic policy and research organization by redefining the economic development discourse in Nepal. Established as a not-for-profit organization under the beed (www.beed.com.np) eco-system, NEF has benefited from extensive exposure, experience and network of beeds who contribute in the research and dialogue process. With Sujeev Shakya as Chair, NEF benefits from the leadership of one the most respected economic analysts in Nepal, known for his bestseller Unleashing Nepal - Past, Present and Future of the Economy (Penguin 2009). NEF has worked in partnership with many Nepali and International institutions in its quest to mainstream the discourse on the Nepali economy, which has not received the necessary space it deserves.

NEF broadly works under three areas: First, the Business Policy Research Center (BPRC), which engages in research, dialogue and dissemination relating to pertinent economic policy issues. Through BPRC, NEF has been producing nefport, a quarterly economic publication docking economic analysis and research, nefsearch, a periodic research publication, conducting neftalk, a platform for policy discourse, and nefcast, an online dissemination platform. BPRC is in the process of starting nefsource a resource center, and holding a nefclave, a platform for discourse on economy and beyond, which is scheduled for September 2013.

Second, through the Center for Public, Private and Community Partnerships (PPCP), the partnerships discourse is further elaborated through addition of the community dimension to the existing models of public private partnerships. The concept stems from the need to integrate the community dimension to economic development strategies especially as Nepal moves towards a federated structure. Apart from standalone interventions, the PPCP perspective is integrated in many of the work that NEF and beed initiate.

Thirdly, through Development Consulting, NEF engages with a plethora of multilateral, bilateral and International Non-Governmental Organizations in areas where a fresh pair of lenses are required to view the formulation and implementation of strategies. Hands on experience along with a wide ‘cultural bandwidth’ put NEF in a unique position to deliver Glocal solutions. With an international network and extensive Nepal experience, NEF uses solution-oriented approach to assignments.

Currently, NEF is helping to incubate the US based Accountability Lab’s Nepal operations. With transparent financial systems, high standards of conflict of interest disclosures, strong support of beed back-end infrastructure, access to high quality global and local human resources and firms, NEF is poised to set high delivery and ethical standards for firms operating in Nepal.

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