A year when the pandemic put the brake on Nepal’s economic growthProjections by various agencies show recovery will be long and arduous, especially with political uncertainty.
The country had seen two years of a stable government when it welcomed a new decade with hopes that the economy would now take off.
Then the pandemic happened.
The pandemic, which shattered the global economy, did not leave Nepal. Economic activities in the country remained suspended due to the four months of nationwide lockdown to prevent the spread of Covid-19.
While the service industry, especially tourism, was hit the hardest, small and medium enterprises suffered a deadly blow, and people lost their jobs in almost all sectors.
When KP Sharma Oli took over the reins of government following his alliance’s landslide victory in the elections, everything was lined up just right for him. Economic growth had been hovering at just over 6 percent for the last three years and the country had finally gotten a strong, stable government after years of political instability.
Riding on these hopes, the government set an ambitious target of achieving 8.5 percent growth in 2019-20. But six months into the new fiscal year, the country is nowhere near achieving the target as things went downhill quickly when the Covid-19 pandemic gripped the country.
It was then that economic projections from various agencies, all of them painting a bleak picture for the economy, started coming in. The World Bank projected in April that Nepal’s economic growth will be limited to 1.5-2.8 percent for the fiscal year 2019-20, followed by 1.4-2.9 percent in 2020-21 and 2.7-3.6 percent in 2021-22.
Raising alarm bells, the World Bank called on South Asian nations to “ramp up action to curb the health emergency, protect their people, especially the poorest and most vulnerable, and set the stage now for a quick economic recovery”.
Days later, Nepal’s Central Bureau of Statistics lowered its projection for Nepal’s economic growth to 2.27 percent for 2019-20.
Amid the pandemic, on May 29, when the country was still under a lockdown, the government presented its budget for the fiscal year 2020-21, setting a highly unrealistic target of achieving 7 percent growth.
Analysts say the year 2020 was bad for the country’s economy, all due to the pandemic. And as the year drew to a close, the country slipped into yet another crisis. Prime Minister KP Sharma Oli dissolved the House of Representatives and announced snap polls on April 30 and May 10.
Nepal continues to teeter on the edge of political instability, an economic slump and a major public health crisis. The recovery process is going to be slow and arduous, analysts say.
According to analysts, authorities now should try to figure out what they can do in 2021 to revive the economy decimated by the pandemic and restore political stability. They say the major concern is political instability and its impact on the economy.
“Irrespective of political turmoil, infrastructure spending should increase and investment-friendly policy must be introduced, if we were to give an impetus to the economy,” says Bishow Poudel, a senior economist. “The government must ensure that economic activities continue without any interruption.”
With no House in place, the Oli government, according to constitutional experts, has been reduced to a caretaker status. This means that it can no longer transfer bureaucrats, appoint ministers, introduce a budget to influence elections, sign any treaties, introduce policies of long-term importance, make political appointments or change tax rates.
“Investors usually get spooked when there is a political crisis,” says Govinda Nepal, a former member of the National Planning Commission. “So efforts must be made to get the country back on track and win the investors’ confidence.”
When the 2017 elections installed the Nepal Communist Party government in February 2018, Oli became the first prime minister in decades to potentially run the country for the full five-year term. It was expected that investors would beeline towards Nepal, which had achieved stability after two decades of political upheaval.
The prospects of the pandemic-shattered economy getting back to normal are still uncertain. But Nepal, the former member of the National Planning Commission, says if the government can convince investors, it will help keep the country’s economy on track.
“Even if no big projects are announced, the concerned ministries must drive the bureaucracy to implement ongoing development projects,” he says.
One major concern is likely to linger on: When will the country get the coronavirus vaccine? As the number of cases started to rise, the government imposed a lockdown, which continued for four months. People duly abided by the government order. But the government failed to see that businesses were suffering and the economy was taking a nosedive. Without stepping up any measures–contact tracing, testing and intensive care beds–the government in the third week of July suddenly lifted the lockdown, after which cases soared at an exponential rate.
As 2020 drew to a close, vaccines have been rolled out in various countries such as the United Kingdom and the United States. But in Nepal, the Oli government declared elections after facing a stiff challenge from his opponents in his party.
“The government’s main focus should have been on bringing the Covid-19 vaccine and providing relief for businesses badly affected by the pandemic,” says Min Bahadur Shrestha, former vice-chairperson of the National Planning Commission. “With the elections announced, there are concerns that the focus will be on the elections instead of development projects.”
According to Shrestha, such things would do even more damage to the already devastated economy.
“There is a possibility that people who need to be working in various construction projects will be engaged in poll campaigns. Election-related expenditure will grow and there will be an entry of black money in the economy,” says Shrestha. “Economic activities that contribute to capital formation will stagnate.”
Before the political turmoil, there was the possibility of a ‘V’ shaped growth after a few months of getting the vaccines. Due to political instability, there is little chance of the economy moving towards a ‘V’ shaped recovery.