Economic Impact of COVID-19 in Nepal « Khabarhub
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Economic Impact of COVID-19 in Nepal



The COVID-19 has struck at the core of Nepal’s social and economic sectors. Notwithstanding the relatively low cases of coronavirus in the country, the number is gradually increasing indicating possibility of serious health implications.

The limited number of coronavirus tests and inadequate management of the Nepali citizens in the border between Nepal and India could be the reasons why the number of cases seen so far is still relatively low.

Sadly, the people waiting in the border are not even receiving basic requirements such as food, sanitation and shelter.

Majority of the stranded people are compelled to stay in open field and even in street together with a large group of people, without being able to maintain social distancing, which is an additional risk for COVID-19 virus transmission.

The demand for testing kits is high globally. Although the production of testing kits has been increased in the world, the available quantity is still not sufficient to meet the demands in several countries, certainly in Nepal. This might be one of the reasons why the number of coronavirus tests is presently low in Nepal.

The current economy of Nepal depends on several countries as the country is heavily dependent on those countries for the import of goods and services and tourist inflow.

A large population wishing to return back to Nepal is waiting at the border; they are not yet tested and most likely that could increase the number of cases – until testing is completed, one can only hope that it will be not be serious.

The government should establish and manage proper isolation centers, what has been achieved appears inadequate. Moreover, people seem to be neglecting the rules and the preventive measures which are expected to follow to ensure that they do not contract with the deadly virus.

Lockdowns should help to reduce virus contact and transmission. It seems that the number of COVID-19 cases in the country is also increasing because of ineffective management of the prolonged lockdown and improper isolation facilities.

The health implications of COVID-19 but the economic impact of COVID-19 of the country, already fragile, is significant. The current economy of Nepal depends on several countries as the country is heavily dependent on those countries for the import of goods and services and tourist inflow.

This situation, if continued, will affect the country’s remittance, foreign direct investment and export.  The World Bank has predicted that South Asian countries will face an economic set back of 40 years due to the pandemic. The scenario is worrying for Nepal — a country that was ready to graduate to a developing country from the least developed country in 2022.

The lockdown has resulted in a huge impact in all the economic sectors of the country. The following data represents the minimum loss caused by COVID-19 in the Nepali economy.

Several businesses in Nepal have remained closed due to the pandemic. Even after the lockdown ends, resuming the businesses or establishment of new businesses will be a challenge. The world currently combats the coronavirus, but the future war is going to be against the dwindling economy that needs to recover for economic development.

The government of Nepal will have a crucial role to intervene in the market to boost confidence besides monitoring the market.

As consumption and investments decrease during the recession, the only way to increase the economic growth is by encouraging consumption and investment through expansionary fiscal policy or by decreasing taxes and/or increasing government expenditure. There are many sectors in which the government can increase spending to boost economic activities starting from the production of goods and services, to export.

 Estimation of Economic Loss

The lockdown has resulted in a huge impact in all the economic sectors of the country. The following data represents the minimum loss caused by COVID-19 in the Nepali economy.

The data presented below is calculated assuming 2 months of lockdown in Nepal i.e. Chaitra and Baisakh. Here, the Gross Value Added (GVA) in each sector by assuming a growth rate of 8%, which is very close to the government target of economic growth 8.5% , has been calculated first.

Then it has been deducted from the actual GVA which has resulted in the given loss. However, since the lockdown in Nepal is prolonged, the loss is expected to increase even more than 1 kharab 84 arab 27 crores 80 lakhs Nepali Rupees (NRS) [1518.04 million $]

Table 1: Expected loss from Coronavirus based on Macro Economic Indicators (In 1 million NRS and USD)

The world is predicted to lose trillions of dollars due to the COVID-19 pandemic. Nepal’s economy, which was on the right track, has been pushed backward.

Nepal’s economy has already incurred heavy losses due to the slump. The total loss that the economy has suffered so far is estimated to be NRs 1 kharab 84 arab 27 crores 80 lakhs [1518.04 million $].

Since all sectors have suffered losses, uplifting the economy is equally important to ensure money circulation, employment, and increased economic activity with simultaneous measures to prevent the spread of the pandemic.

The most severely affected sectors of Nepal’s GDP are agriculture and forestry (estimated loss: 49 arab, 85 crores 60 lakh NRS) [410.70 million $], followed by wholesale and retail trade (estimated loss: 25 arab, 46 crores 40 lakh NRS) [209.77 million $], real estate, renting and business activities (estimated loss: 21 arab,72 crores 80 lakhs NRS) [178.99 million $] and education (estimated loss: 14 arab,23 crores 60 lakh NRS) [117.27 million $].

Given that Nepal is an agricultural country and the sector accounts for 27.08 % of the country’s total GDP, the sector has been estimated to suffer the most. In the months of Chaitra and Baisakh (spring season), harvests should have already begun. However, due to prolonged lockdown, farming has been affected.

The monsoon season, (Asar and Shrawan) is less than one month away and if the lockdown continues, without any relaxation, the crop harvest for the coming fiscal year will be significantly low.

Similarly, due to strict lockdown measures, retail shops and wholesale shops excluding essentials (food, medicine, and water) have been forced to pull down their shutters either temporarily or permanently.

Consumption of goods such as clothing, electronics, automobiles, and luxury goods (e.g. gold and silver) has declined significantly. Since all sectors have suffered losses, uplifting the economy is equally important to ensure money circulation, employment, and increased economic activity with simultaneous measures to prevent the spread of the pandemic.

In Table 2, the primary sector comprises Category A, B and C, i.e. Agriculture and Forestry, Fishing and Mining and Quarrying. The secondary sector comprises Category D, E and F i.e. Manufacturing, Electricity gas and water and Construction whereas, the tertiary sector which is also known as the service sector comprises the rest of the categories in the table.

Here, the tertiary has been hit the most due to the lockdown resulting in a loss of 1 kharab 6 arab 66 crore 60 lakh NRS [878.69 million $]. As the tertiary sector comprises all the service sectors such as transportation, hotels, administration, education, etc. it is obvious for the sector to face a severe loss as compared to other sectors due to lockdown.

However, the loss faced by the primary sector and the secondary sector is no less with 52 arab 9 crores 50 lakh NRS [429.15 million $] and 25 arab 51 crore 80 lakh [210.21 million $] NRS respectively.

Additionally, the total amount of loans provided by commercial banks, development banks and financial institutions in the last fiscal year in Nepal was worth 28 kharba 66 arba NRS [23.61 billion $]according to Nepal Rastra Bank (NRB).

The loan borrowers have to pay a certain percentage of interest in the amount of loan they have borrowed regardless of the lockdown.

It’s evident that most of the economic activities are paused, and people are undergoing a lot of difficulties to pay back their loans. If we take 10% as an average interest rate, the total amount of interest rate payment per year tends to be NRs 2 kharab 86 arab 60 crore [2.36 billion $].

Most of them lack basic facilities such as food, shelter and sanitation. They are compelled to stay on the street of the border waiting for government’s response.

The daily loss incurred by banks and financial institutions will then be NRs 79 crore 61 lakh [6.56 million $]. As scheduled loans are not being paid by a majority of the population, banks, too, are sufferings.

Recommendation

The prolonged lockdown has perturbed most of the business enterprises in Nepal. The daily loss estimated in the economic sector as a result of the two months of lockdown comes to around NRs 3 arab 7 crores 13 lakh [25.30 million $].

The amount of loss is expected to rise higher in the future as the lockdown is being extended as a preventive measure. It is high time that the government realized that lockdown is not the only preventive measure to fight the pandemic.

Also as a priority, the government should start recognizing the citizens stuck in the border and those willing to return back home. A huge number of Nepali citizens are waiting in Nepal-India border with a hope to be rescued by the government of Nepal.

Most of them lack basic facilities such as food, shelter and sanitation. They are compelled to stay on the street of the border waiting for government’s response.

As a responsibility towards their citizens, government should start rescuing these people who are helpless and hopeless during this severe time.

As a precaution, they must be tested for COVID-19 and kept in quarantine. For this, hotels, schools, and banquet halls can be used as quarantine facilities. The ones capable to pay will pay for the said requirements and for the ones who cannot, the government should bear the cost.

The scale of resources allocated is not enough to fight the pandemic. Proper management of isolation facilities including health, sanitation, food, and water needs to be taken care of. The relaxation of the lockdown by maintaining these safety measures will be possible to ensure boosting the economy.

(With inputs from Nitish Shrestha)

Publish Date : 24 May 2020 07:06 AM

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