Last fiscal year Nepal witnessed a negative economic growth of 1.99 percent. It was the first time in nearly four decades that the country’s growth went into the red.

When the last fiscal year ended in mid-July, Nepal had been under a nationwide lockdown for nearly four months to control the spread of the coronavirus that was imposed on March 24. In the final quarter of the fiscal year 2019-20 alone, the economy contracted by 15.4 percent.

The hammer blow the economy took was attributed to the lockdown. But such was its impact that the economy continued to suffer even after the lockdown was lifted on July 21.

After the lockdown was lifted, even as the number of coronavirus cases continued to increase and local prohibitory orders were issued, including in Kathmandu Valley, in the first quarter of the current fiscal year the economy is estimated to have contracted by 4.6 percent.

But according to the Central Bureau of Statistics, there has been a remarkable improvement in the economy in the second quarter of the current fiscal year—mid-October to mid-January. Data for the period is currently being processed.

“All sectors of the economy are on the road to recovery. We cannot immediately say whether the economy will see growth in the second quarter. Based on the raw data, we will either see marginal contraction or a slight growth in the second quarter,” Hemraj Regmi, deputy director general of the bureau who is in charge of the economic statistics division, told the Post.

From a high of 5,743 new cases of coronavirus on October 21, the number of daily cases has been going down steadily. On March 6, just 47 new cases were detected.

But since then, the number of cases has once again been rising with 188 infections confirmed on Tuesday.

The private sector is already worried about a potential new wave of the Covid-19 contagion in Nepal.

“The second wave of the virus in neighbouring India has put us in a fix,” said Binayak Shah, senior vice president of the Hotel Association of Nepal.

In India, from a low of about 11,000 new infections per day in mid-February, the number of cases has been gradually rising with 46,951 new Covid-19 infections and 212 fatalities reported on Monday. Nepal shares a 1,800-kilometre open border with India.

“The restaurants have already seen a drop in visitor numbers since the beginning of this week. It’s not looking good,” said Shah.

Hospitality has been one of the hardest hit sectors from the pandemic over the past year and many hotels and restaurants in the country have shut down indefinitely.

According to the statistics of the Department of Immigration, only 230,085 foreign tourists visited Nepal last year, about the same number that came in 1986. And most of them arrived before the country imposed entry restrictions on March 20.

The year 2021 started on a disappointing note. Nepal received less than 9,000 foreign visitors in January. The disappointment continued in February with 9,146 arrivals, a steep 87.6 percent year-on-year drop.

Tourism entrepreneurs are hoping to see travellers return to the country this spring that runs from March to May-end, which is considered the peak tourist season.

But most other sectors of the economy are looking brighter, according to Nepal Rastra Bank.

In the first seven months of the current fiscal year, import increased for the first time in 19 months, remittance has been growing and lending to the private sector has soared, data of Nepal Rastra Bank shows.

The import of capital goods such as machineries and industrial goods has also grown substantially in this period.

Private sector credit from banks and financial institutions increased 14.1 percent, compared to a growth of 8.9 percent in the same period last year, while the remittance inflow grew by 10.9 percent during the same period to Rs.567.70 billion, according to the central bank.

“Due to a substantial rise in credit extension to the private sector, excess liquidity in the banking sector has come down around Rs50 billion now from over Rs200 billion in early September last year,” said Gunakar Bhatta, executive director at the central bank.

Domestic tourism has seen a revival, trade and ground transport has largely normalised, according to Keshav Acharya, an economist.

In the case of the industrial sector, on the other hand, the progress has been mixed.

A central bank’s survey in November-December last year found that 54 percent of industries and businesses were fully operating compared to 61 percent fully closed in an earlier survey in June last year and transactions had improved to 50.51 percent of pre-Covid period from 28.77 percent in the earlier survey.

But the Central Bureau of Statistics says the industrial sector is still expected to see negative growth in the second quarter of this fiscal year.

“Within the industrial sector, manufacturing is expected to see negative growth probably due to industries not operating in full capacity,” said Regmi of the bureau.

The outlook for the agriculture sector, Nepal’s second largest contributor to GDP after the service sector, is also not looking good this fiscal year with the winter drought already taking its toll on wheat production.

“The key winter crop—wheat production is not looking good due to the winter drought,” said Ram Krishna Regmi, chief statistician at the Ministry of Agriculture and Livestock Development. “We are expecting a drop in wheat harvest this fiscal year after a bumper harvest in the last fiscal year.”

Wheat output, the third largest cereal crop after paddy and maize, which is harvested in April-June, amounted to 2.2 million tonnes last fiscal year.

Nepal received 31 percent more rain last monsoon season than the average rainfall in the last three decades, resulting in a better-than-expected harvest of paddy despite the shortage of soil fertilisers.

However, due to the impact in the supply chain and localised restrictions, Nepal’s agriculture sector growth rate dropped to 2.23 percent in the last fiscal year, against a robust 5.16 percent growth the previous year.

The demand for meat, milk, vegetables and grains has still not picked up due to low consumption led by the closure of hotels and restaurants.

“The closure of thousands of hotels and restaurants largely affected the demand for meat and dairy products in the last fiscal year. This year too, hotels and restaurants have not made a full comeback,” said Regmi.

“Low consumption is obviously causing a distress to the economy.”

According to Regmi of the Central Bureau of Statistics, even though the outlook for winter crop looks bleak, the agriculture sector is expected to grow by more than 3 percent in the second quarter of the current fiscal year.

In other words, the economy is still by and large recovering from last fiscal year’s hit and is not yet out of the woods. A second wave would hit it hard again, economists say.

“As the country is on the road to economic recovery, a potential second wave of coronavirus in the country could dent the fragile recovery,” said Acharya.

A second wave would mean at least another year of devastation.

“The country’s economy will suffer at least one more year if a new wave of coronavirus hits the country,” said Bhatta.

But a blanket lockdown would not be the answer even if there is a second wave, according to economists and entrepreneurs.

“Instead of imposing a lockdown, the government should allow economic activities to continue ensuring that adequate safety measures are taken against Covid-19,” said Acharya, who is also a former chief economic advisor at the Finance Ministry.

“As the virus is spreading in India but is yet to spread in Nepal, the biggest priority should be taking strict control measures in bordering areas followed by an intensification of the vaccination drive.”

People from the private sector also want a careful approach to addressing the risk of Covid-19 instead of a blanket lockdown.

Karna Bahadur Shahi, adviser to the National Private and Boarding Schools’ Organisation, said that schools, which were allowed to reopen just a one to two months ago, should be allowed to continue to run.

“Evidence has shown that people below 19 years of age are less vulnerable to be infected with coronavirus and they also have higher immunity levels than older people,” said Shahi, who also operates a private school in Kathmandu.

“We are again facing uncertainties,” said Shah of the hotel association.