Economy is slowly recovering after taking a nosedive. But political instability could stall it againAs Nepal marks a year since the first Covid-19 case, latest indicators have been encouraging but as far as tourism is concerned, it will take years to get to pre-pandemic levels.
Prithvi Man Shrestha & Sangam Prasain
Nanda Raya Poudel, owner of Swargadwari Bahumukhi Yatayat Sewa based in Pyuthan, had to park his three buses when the government imposed a nationwide lockdown in March last year.
Cash flow dried up. But the banks that he owed money to kept calling for payment of installments. He had taken a loan of nearly Rs10 million to buy two buses and a jeep on two different occasions.
“I had never missed paying installments of loans in the past,” Poudel said. “But after the lockdown I could not pay the installment for 10 months. Even during such a crisis, the banks continued to build pressure on me to repay the loans."
Nepal Rastra Bank, through the monetary policy for the fiscal year 2020-21, has extended the deadline for loan installments of the lockdown period to mid-April 2021 for the passenger transport sector, categorising it as medium-level pandemic impacted sector. Banks, however, have ignored the policy, according to Poudel.
“I had to take loans from village money lenders to pay installments due to one of the banks for 10 months,” he said. “In the case of another bank I could pay only around half of the interest due.”
One of his buses operates on the Nepalgunj-Kathmandu route, but with the border between Nepal and India closed even after the lockdown was lifted in July, the passenger numbers remain low.
“My passengers were mainly people coming from India,” Poudel said.
On January 24 last year, Nepal had identified the first case of Covid-19 in a Nepali student studying in Wuhan, China, where the coronavirus is believed to have originated.
Nepal on Sunday reported seven more Covid-19-related fatalities, pushing the death toll to 2,001. The overall infection tally has reached 269,450 with 3,312 active cases.
According to the Ministry of Health and Population, 264,137 infected people have recovered from the disease so far; of them 403 in the past 24 hours.
While the loss of life and impact on the health of the people infected has been devastating, the economic cost of the pandemic has been far-reaching and it will be a while before recovery is complete, according to official estimates and economists.
“The pandemic has derailed the growth target of two fiscal years of 2019-20 and 2020-21,” said Shankar Sharma, former vice-chairperson of the National Planning Commission.
Having had two years of stable government there were high hopes that the economy would now take off. The government had set an ambitious target of achieving 8.5 percent growth in 2019-20. But eight months into the new fiscal year, the pandemic led the country’s economy to freefall with a four-month-long nationwide lockdown to prevent the spread of Covid-19.
In April last year, a month into the lockdown the Central Bureau of Statistics projected that the growth in 2019-20 might have slipped to 2.7 percent.
The bureau is yet to determine the actual economic growth in the fiscal year 2019-20.
"We are in the process of determining the growth in the fourth quarter of the last fiscal year and first quarter of the current one," said Hem Raj Regmi, deputy director general at the bureau.
A recent study the National Planning Commission estimated the last fiscal’s growth could have been as low as 0.6 percent, according to the Min Bahadur Shahi, a member of the commission.
According to another study of the World Bank, Nepal’s economy came to a standstill mainly due to the lockdown in the last fiscal year 2019-20 that ended in mid-July, registering a negligible growth of 0.2 percent.
But despite businesses being open now, the outlook is bleak for the current fiscal year 2020-21 too. The economy is projected to grow by just 0.6 percent against the government’s target of 7 percent, as Covid-19 periodic and localised lockdowns continue and disruptions to tourism are expected to persist, according to the World Bank’s South Asia Economic Focus.
The worst hit sector has been tourism as the country stopped international flights on March 24 at the peak of the spring tourist season. Although the government opened the country for tourism in mid-December, having opened it for mountaineering and trekking on October 17, arrivals have been few.
On March 12, 2020, the government decided to stop issuing on-arrival tourist visas besides cancelling spring mountaineering expeditions including those to Everest.
Nepal lost nearly 1 million foreign tourists the past year, putting nearly a million jobs at risk.
International tourist arrivals plunged 81 percent in 2020, worse than the downturn during the Maoist insurgency between 1996 and 2006 and the 2015 earthquakes combined, and tourism spending is not likely to return to pre-crisis levels until 2024, according to the stakeholders in the tourism industry.
The drop is the worst year-on-year drop since Nepal opened for the outside world in the 1950s.
According to the Department of Immigration, only 230,085 foreign tourists visited Nepal last year, a figure similar to that of 1986.
“The figure suggests that Nepal lost nearly a million tourist in one year,” said Deepak Raj Joshi, former chief executive officer of Nepal Tourism Board. “It had taken six decades for Nepal to reach that magical figure.”
In 2007, a year after the Comprehensive Peace Agreement between the Maoists and the government, tourist arrivals had crossed the half a million mark for the first time. However, it was only in 2018, Nepal doubled its tourist figure reaching the coveted one-million mark.
Indicative of the extent of the damage to the sector is the closure in December 2020 of the iconic Hotel Annapurna, after nearly six decades of operation. The 360 employees at the hotel lost their jobs overnight.
“To go somewhere new and start with a minimum salary would not be enough for me and my family to survive on,” said a senior executive of the hotel who was laid off after working there for almost three and half decades.
He had been collecting just Rs10,000 per month in salary for nearly nine months after the Hotel Association Nepal had in July 2020 unveiled a uniform pay structure for all staff members from front office workers to general managers to remain afloat in the business.
“Not only employees suffered hardship, the employer did too,” said the former executive who did not want to be named. “We cannot unilaterally blame the owners.”
Almost all hotels in Kathmandu closed their doors in March when the government announced a complete lockdown to prevent the spread of the coronavirus.
He feels that more hotels could follow suit.
“Obviously, jobs in the hospitality industry are at risk although other sectors are gradually recovering. Even the employees retained by the companies will not get optimum benefits like an increase in their salaries until the industry returns to the pre-crisis level,” said Binayak Shah, senior vice president of the Hotel Association of Nepal.
Hotels, particularly those in the Kathmandu Valley, may see a flurry of temporary closures as they have been struggling to pay employees with no hope of tourists coming back in the near future, industry insiders said.
Sinking under the weight of overdue payments, many hotels operating out of leased properties have already shut down for good, and many others are struggling to keep their heads above water.
Shah said that many hotels in Pokhara and Chitwan have been surviving due to the increased movement of domestic travellers but in Kathmandu, people don't stay or dine in star-rated hotels.
During the lockdown, 91 percent of total hotels and restaurants had been closed fully, while over 7 percent of them were partially opened, according to a Nepal Rastra Bank study released August.
If tourism was probably the hardest hit sector, the aviation sector was not far behind losing nearly 5 million domestic and international airline passengers.
Tribhuvan International Airport data show that domestic carriers lost 1.73 million passengers last year which translates to a loss of more than Rs5 billion in passenger revenue, excluding losses in cargo revenue.
International passenger traffic in 2020 fell to its lowest level since 2003, illustrating Covid-19's devastating impact on air travel.
According to airport statistics, 1.10 million international travellers passed through the airport in 2020, a 73.29 percent plunge from the previous year.
“Our forecasts indicate that it will take at least two years for tourism demand to return to 2019 levels. This prolonged period of low demand means we have to survive on domestic tourists,” said Dhananjay Regmi, chief executive officer of Nepal Tourism Board.
Land transport and entrepreneurs like Poudel suffered significantly according to official statistics.
During the lockdown, 76.47 percent of vehicles had fully remained in garages while 23.53 percent vehicles were operated partially, according to the central bank study released in August.
The government officially lifted the lockdown on July 21. It paved the way for massive spread of Covid-19 across the country, particularly in Kathmandu Valley. On July 21, there were 17,994 cases and just 40 deaths in the country.
Despite resurgence in cases, the government didn’t roll back the reopening of the economics activities.
Hotels and restaurants were allowed to reopen from late July. Long haul transportation service restarted in mid-September. Industries had been allowed to reopen even during the lockdown if they adhered to strict health protocols. International flights resumed from early September and the government allowed entry of foreign tourists for mountaineering and trekking only from October 17 and the provision was later relaxed for all tourists provided they came with visas as on-arrival visas are not issued.
But despite the reopening of the economy, businesses are yet to return to normal.
A follow-up study by the central bank in November and December last year showed only 53.95 percent businesses are operating fully while 9 percent are yet to resume operation. Their average transaction is just half of pre-pandemic levels, according to the study.
“This shows that the situation is far from normal,” said economist Keshav Acharya. “But, it also shows that the economy has been recovering from the almost complete shutdown during the lockdown.”
With the number of Covid-19 cases hovering below the 500 mark in recent weeks from a high of 5,743 cases on October 21, people’s mobility has grown substantially and consequently economic activities.
The central bank’s own follow-up study also showed that most of the economic sectors are either operating fully or partially.
Around 97 percent of the agriculture sector, 97 percent of wholesale and retail sectors, 88 percent of the transport sector, 76 percent of hotels and restaurants, 70 percent of educational institutions were operating fully or partially in November and December.
Overall, only 9 percent of enterprises of different sectors were fully closed.
“Given the growing economic activities, the economy is unlikely to see negative growth,” said economist Sharma.
Acharya is even more optimistic.
“Based on current economic activities, there is a possibility that we can see growth up to three percent in the current fiscal year,” Acharya, who had also served as executive director at the Nepal Rastra Bank and chief economic advisor at the finance ministry, said.
Going by some indicators, signs are encouraging indeed.
According to the central bank, private sector credit from banks and financial institutions increased 7.1 percent in the first five months of the current fiscal compared to a growth of 6.2 percent in the corresponding period in the previous year.
Besides, the country witnessed record high paddy production due to good monsoon despite shortage of chemical fertilizers during the transplantation season, according to the Ministry of Agriculture and Livestock Development.
According to preliminary estimates of the ministry released in December last year, farmers harvested 5.62 million tonnes of paddy, up by a marginal 1.28 percent compared to last year.
Another welcome news for economic recovery has been the arrival of the vaccine.
Last week, Nepal received one million doses of Covid-19 vaccines from India in the form of a grant with which the government plans to immunise frontline health workers, staff employed at health institutions, security personnel among others.
But the ongoing political instability, following the December 20 dissolution of the House of Representatives and call for midterm polls on April 30 and May 10, could derail the economic recovery process, according to economists.
“Political leaders will focus on next elections instead of focusing on implementing development projects. Bureaucracy will not take necessary decisions to expedite development activities. Donation drive will discourage the private sector to invest,” said Sharma.
While trading activities through which entrepreneurs could make quick money could grow with lax government oversight due to political uncertainty, long term growth will be affected.
“The most cherished long-term investment in the manufacturing sector that creates mass employment, will hardly be witnessed in a situation of political instability,” said Acharya.