After two lost years of the country’s economy amid the devastating Covid-19 pandemic, uncertainty clouds prospects of an economic recovery as the fiscal year 2021-22 begins.

As a result of the strict lockdown measures taken in the fiscal year 2019-20 that lasted four months, the country’s economy shrank by 2.1 percent, the first such contraction in nearly four decades. With the final data for the fiscal year 2020-21 yet to be tabulated, it’s unlikely that the economy grew by 4 percent as projected. The revised projection was made before the second wave of the pandemic hit the country in April.

Although experts and the business community remain hopeful that the economy will improve in the fiscal year 2021-22, they are not confident.

When Bishnu Poudel, the outgoing finance minister, presented the budget for the fiscal year 2021-22 through an ordinance on May 29, he targeted growth of 6.5 percent for the current fiscal year that began on Friday. The implementation of the budget itself is open to question with the formation of the new government led by Nepali Congress President Sher Bahadur Deuba earlier this week.

“The performance of the economy will largely depend on how fast we can vaccinate our population against Covid-19,” said economist Keshav Acharya. “If we can inoculate widely, even the potential third wave of the pandemic won’t affect our economy as badly as the first and second waves.”

Health experts expect that a third wave of the coronavirus may hit the country in the autumn.

The private sector also has its hopes on widespread immunisation and wants those associated with businesses to be prioritised for vaccination.

“We have been urging the government to prioritise vaccinating people associated with businesses as they would help in economic revival,” said Satish Kumar More, president of Confederation of Nepalese Industries (CNI), a grouping of medium and large industries.

During an interaction organised by Kantipur, the Post’s sister paper last week, Maha Prasad Adhikari, the central bank governor, said that economic activities will be back to almost normal in the second half of the current fiscal year with most people vaccinated.

Other government authorities are equally hopeful of vaccination.

“In our discussions, officials at the Health Ministry say that the situation would largely normalise if we can vaccinate 40 percent of the population,” said Hem Raj Regmi, deputy director general at the Central Bureau of Statistics. “Based on reports about arrivals of vaccines from various countries, we are hopeful that a significant number of the population can be vaccinated and economic activities could be operated smoothly to a large extent.”

According to the latest figures of the Ministry of Health and Population, 2,765,709 individuals have been given one dose of the Covid-19 vaccine while 1,12o,282 of them have received both doses. Estimating that the country’s total population is 30 million, this translates into 9.2 percent of the population getting the first dose of the vaccine and 3.7 percent being fully vaccinated.

The vaccination campaign has been picking up of late. Nepal has started getting delivery of the 4 million doses of the Vero Cell vaccine that it bought from China under a non-disclosure agreement. The first shipment of 800,000 doses has already been administered and more will arrive next week.

On Monday, the country received 1.5 million doses of the single-shot Johnson & Johnson vaccine from the United States in a grant through the COVAX facility and vaccinating people with them will begin next week. On Tuesday, Japan announced providing 1.6 million doses of AstraZeneca vaccine in a grant through COVAX. On Friday, Chinese ambassador to Nepal Hou Yanqi announced an additional grant of 1.6 million Vero Cell doses, taking the total vaccine grant from the northern neighbour to 3.4 million doses.

“Although there are promising signs the country will get significant quantities of Covid-19 vaccines in the coming months, they will not be enough as the number of people to be vaccinated is also huge,” said economist Acharya.

Nepal plans to vaccinate 72 percent of its population—or around 22 million people. Of these, an estimated 4 to 5 million are living abroad, meaning that the government needs to vaccinate around 17 to 18 million people. Before his exit, KP Sharma Oli, the outgoing prime minister, claimed that he had made arrangements of securing 13.1 million doses of Covid-19 vaccines in the next few months.

Besides news on vaccines, other indicators also present a positive picture of the economy.

According to Regmi, signs are good for the agriculture sector due to the good monsoon so far. The sector contributes 25.83 percent to the economy.

Amid rising imports even in the middle of the pandemic, there is hope for the trade sector in the current fiscal year, according to experts. During the first 11 months of the fiscal year 2020-21 that ended on Thursday, imports grew by 25.7 percent and exports by 37.8 percent, according to the Nepal Rastra Bank data.

The sector’s estimated contribution to the economy in the fiscal year 2020-21 stood at 15.67 percent, making trade the second largest contributor after agriculture.

Growing use of telecommunication and internet services and increased expenditure in the health sector are also expected to boost their contribution to the economy, according to experts.

The completion of the Upper Tamakoshi Hydropower Project, which will generate 456 megawatts when fully commissioned, means that the contribution of electricity generation to the economy will grow substantially. The resumption of water supply from the Melamchi Project will greatly contribute to the economy, according to Regmi, although the share of these sectors to the economy is very small.

Electricity, gas and air conditioning supply contribute a mere 1.23 percent while the estimated contribution of water supply and waste management to the economy stood at 0.55 percent last fiscal year, according to the Central Bureau of Statistics.

“But how the tourism and hospitality sector, transportation, manufacturing, construction and education sectors will perform is uncertain,” said Regmi.

These are some of the hardest-hit sectors from the pandemic in the last two years.

In the fiscal year 2020-21, the combined contribution of these sectors to the economy accounted for around 26 percent.

Despite relaxing the lockdown, schools remain closed and there are certain restrictions for reopening hotels and restaurants. Construction activities suffered due to the lockdown in the final months of the fiscal year, just when such activities were slowly picking up.

Before the second wave hit the country in April, the economy was on the road to recovery, according to a Nepal Rastra Bank follow-up survey.

For example, while only 4.1 percent of industries were fully operational in June last year, 81.2 percent were operating in April this year compared to the pre-pandemic time.

The private sector’s confidence about economic recovery was also growing, which is reflected in the credit extended to the sector by banks and financial institutions.

As of the first 11 months of the fiscal year 2020-21, private sector credit grew by as much as 25 percent compared to the same period in the fiscal year 2019-20. During the 10th and 11th months of the fiscal year 2020-21, when businesses were closed amid the second wave, credit to the private sector slumped.

But with the relaxation of the prohibitory orders, almost all economic activities, except schools, sporting venues and banquet halls—places where large gatherings take place, have resumed. Restaurants have also been allowed to reopen till 7pm for takeaway and online delivery services in Kathmandu Valley.

The number of daily new cases hovers around the 2,000 mark from a high of 9,317 new infections on May 11. On Friday, the Health Ministry reported 2,006 Covid-19 cases.

Despite the slow opening of restaurants, the hospitality sector is expected to continue to suffer due to limited movement of people within the country and hardly any flow of foreign tourists for a prolonged period. Hotel entrepreneurs have little hope for the revival of the sector, at least in the near future.

“It will take at least two years for us to reach the pre-Covid state of 2019 in terms of tourist arrivals and booking of hotel rooms,” said Binayak Shah, first vice-president of the Hotel Association of Nepal, a grouping of hoteliers. “Currently, hotel beds have largely remained unoccupied with few beds being occupied by people in quarantine.”

He, however, said that the revival of the tourism sector could begin this fiscal year provided the vaccination drive against Covid-19 is accelerated at the earliest.

“We have been receiving good inquiries from clients who want to come to Nepal for mountaineering and trekking in the autumn season,” said Shah. “But we have not been able to respond to them with conviction that we can provide them essential facilities with the government failing to assure us.”

According to Shah, Nepal should have an integrated policy to promote tourism alongside the vaccination drive.

“At least the budgetary provision of giving leave to government employees with travel expenses of 10 days of their salary should be implemented to promote domestic tourism,” he said. An announcement to this effect was made when the budget was announced in May.

According to experts, government spending is also important for economic revival. The contribution of the construction sector will largely depend on the government’s capital expenditure.

“Even though the private sector’s spending is the key driver of economic recovery, we cannot discount the contribution of around 30 percent spending from the government,” said Acharya. “Increase in the government’s capital expenditure also contributes to the spending from the private sector because they have to produce more construction materials.”

In the fiscal year 2020-21, the government’s capital expenditure stood at just 65 percent of the planned expenditure of Rs352.91 billion, one of the lowest in recent years. In the fiscal year 2019-20, capital expenditure accounted for just 46.34 percent of the total capital budget. In the previous two years of 2017-18 and 2018-19, capital expenditure was over 75 percent of the capital budget.

Meanwhile, Nepal Rastra Bank is preparing to introduce the monetary policy for the fiscal year 2021-22.

Through the budget, the outgoing government had announced giving continuity to the Business Continuity Credit Scheme, which was introduced last fiscal year targeting micro, small and medium enterprises and all types of enterprises related to tourism to help them revive following the first wave of the pandemic.

The refinance scheme, under which the central bank subsidises interest on loans, of the central bank will also continue, according to the budget. But Nepal Rastra Bank has indicated that its relief package might not be as big as last year’s.

“We are awaiting the monetary policy which should help the revival of the enterprises affected by Covid-19,” said More of the Confederation of Nepalese Industries. “Besides vaccination, the government and the central bank should continue the rescue package for enterprises hit hard by the pandemic.”

But while the threat of the coronavirus persists, the country is also entering a phase of political instability and this worries the experts and entrepreneurs.

Deuba became the new prime minister this week but questions over his government’s longevity depend on whether he wins the vote of confidence from lawmakers within a month. Otherwise, there will be elections in six months.

“With the country not out of the woods in terms of the pandemic and the political uncertainty, we can, at best, hope for modest economic growth but only if the situation normalises,” said Acharya, the economist. “But the expectation of high growth is just a mirage.”