The ripple effect of COVID-19 on the Nepali economy

Prashanna Mahat

April 26, 2020

8 MIN READ

The ripple effect of COVID-19 on the Nepali economy
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The COVID-19 pandemic has been adversely affecting global supply chains and international trade. Many countries have closed their borders in an attempt to subvert the spread of COVID-19 from incoming foreign travelers.

Governments have resorted to lockdowns to curb the spread of the pandemic. This has severely disrupted the service sector like retail, hospitality, recreation and transportation.

According to the United Nations Department of Economic and Social Affairs, with the decline in business revenue, there will be a rise in unemployment resulting in a conversion of the supply-side shock to a demand-side shock.

Nepal’s economy has also taken a hit since the outset of COVID-19. On March 24, the Government of Nepal announced a one-week lockdown to control the spread of the virus, which was extended in April.

This move was taken by the government in response to an increase in the number of reported COVID-19 cases within the nation, from 4 to 9.

Insofar as Nepal’s economy is concerned, two factors will be pivotal in deciding the seriousness with which the economy of the nation will be impacted: the duration of the lockdown, the perpetuation of travel restrictions, and the effectiveness of government measures to tackle and deal with COVID-19.

Even before the lockdown, the tremors of COVID-19 were felt economically in Nepal. With the decline in incoming tourists, Visit Nepal Year 2020 has become a major failure.

With the source of COVID-19 being in China, from where a large chunk of Nepal’s tourists arrive, and India’s closed borders coupled with international travel restrictions in Nepal and abroad, Nepal suffers a plunge in revenue.

This has concomitantly affected the hospitality sector and related service sector (and the thousands of people these sectors employ) that greatly rely on tourism for sustenance.

Apart from tourism, Nepal’s economy is heavily reliant on foreign employment and remittance. In 2019 alone, remittance accounted for 26% of Nepal’s GDP.

This includes cash and non-cash items that pass through legal channels, like electronic wire or via informal channels like money or goods carried across borders.

A majority of the funds comprise of cash and non-cash items sent by individuals who have migrated to a new economy and have become a resident there and the compensation of seasonal and other short-term workers that are employed in an economy of which they are not residents.

The remittance inflows to the Nepali economy have a positive impact on the economy. These benefits cumulatively have a multiplier effect and contribute to the entire economy, fostering growth in consumption, education, employment, etc.

The COVID-19 in India is also particularly critical in the context of Nepal as we are reliant on India for medicines, construction goods, raw materials and consumer goods.

Amidst the corona outbreak, there has been a loss in employment in the foreign labor sector and a consequent decrease in remittance. In sectors that require regular physical interaction like hospitality, construction, industry, transport, health and factories, people are more affected.

In light of this, the remittance inflows to Nepal are expected to decline from foreign countries, particularly from Qatar, United Arab Emirates, Saudi Arabia, Kuwait and Malaysia. Moreover, if the COVID-19 pandemic ensues, there will be a shortage of consumer goods.

The COVID-19 in India is also particularly critical in the context of Nepal as we are reliant on India for medicines, construction goods, raw materials and consumer goods.

The spillover effect of COVID-19 has also permeated to the infrastructure sector. With the government’s announcement barring gatherings of more than 25 people, the construction of major infrastructure projects has been severely impeded.

Pokhara International Airport and Gautam Buddha International Airport have come to a halt. This has been impeded more so in the context of COVID-19 as both Chinese firms and Chinese laborers are inordinately involved in both projects.

The effects of the pandemic are all the more pronounced in the labor sector, particularly more on the daily wage workers.

The lockdown places these workers in a precarious position with very little savings, food shortage and even starvation. With little to no savings, these people and their families suffer.

The continuance of the lockdown in this scenario is likely to do more harm than good. In light of this situation, it is imperative that the government takes effective measures to prevent the spread of the disease, provides the required support/relief to starving and sick people, vulnerable groups and help to keep enterprises afloat.

Additionally, the government must make use of dialogue to aid employers and employees in resolving problems.

With limited resources and poor health services and facilities, preventing the spread of the disease is the best way to go.

The government has announced a 25% discount on the electricity consumption of households with 150 units, payment of tourism employees from their welfare fund, insurance for health workers, waived fines for late payment of utility bills, 10% discount on essentials, extended tax payment deadline, exemption on custom charges on medical equipment, ban on peppercorn and ban on certain crops like peppercorn, betel nut, peas and dates.

The Ministry of Health and Population has also taken steps to control the spread of COVID-19. For example, group monitoring teams and health desks have been established at border check-points like Kathmandu, Chitwan, Pokhara, Bhairahawa, Ilam and other areas.

While these decisions and measures are laudable, the efficacy of these measures and the implementation of the decisions is an entirely different matter.

The country lacks adequate COVID-19 tests. Moreover, the government lacks adequate health care facilities to control the disease in the event of a widespread outbreak.

In light of this, the World Bank has granted $1.4 billion to South Asia as emergency support. Emergency COVID-19 packages have already arrived in India, Pakistan, Sri Lanka, Afghanistan and Maldives and they are still on their way for Nepal, Bhutan, and Bangladesh.

Insofar as Nepal’s economy is concerned, two factors will be pivotal in deciding the seriousness with which the economy of the nation will be impacted: the duration of the lockdown, the perpetuation of travel restrictions, and the effectiveness of government measures to tackle and deal with COVID-19.

With limited resources and poor health services and facilities, preventing the spread of the disease is the best way to go.

Under these circumstances, the government should do its best to strengthen its regional institutions to mitigate the effects of COVID-19, provide relief packages to vulnerable sections of society during the lockdown and ensure that appropriate health services and quarantine are done for those that are already affected in order to prevent further spread and further economic ruin.

(Prasanna Mahat is an Attorney and an LL.M. graduate from University of California, Los Angeles)

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