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Nepal Economy During The Coronavirus Pandemic

Updated on Apr 16, 2020
Nepal Economy

Nepal reported its first confirmed Coronavirus case as early as January 24th. And so far it has reported 16 positive cases with zero deaths. It is safe to say that Nepal so far has been doing well in comparison to its neighboring countries. 

Nations around the world are in a tug of war to contain the virus, governments and central banks in the United States, United Kingdom, Canada, et al have responded with aggressive fiscal and monetary policies to offset the economic impact. Nepal will not be immune to the Coronavirus pandemic’s adverse economic fallout. 

Coronavirus and Nepal’s Remittance

Nepal’s economy is heavily dependent on remittances, providing a livelihood for many households and lifting millions of people above the poverty line. In 2018, Nepal received $8 billion in inward remittances, which contributed to an astounding 30% to the entire Gross Domestic Product (GDP) composition, ranking 4th in the world on Remittances to GDP ratio

This inflow of remittance is majorly from the Gulf Countries such as the United Arab Emirates, Saudi Arabia, and Qatar among others.

remittance flow

The combination of the oil price war between Saudi Arabia and Russia and the deadly Coronavirus virus has crippled the global economies. A third of the world is on lockdown with many countries putting shelter-in-place orders, which means people cannot travel and hence less demand for oil and gas. Price war and oversupply due to drop in demand have made oil technically almost free with experts predicting that it was headed for $10 a barrel. 

To add to it the current situation of the Coronavirus outbreak in the Gulf countries is escalating. For instance, Qatar and Saudi Arabia have over 3500 and 500 confirmed COVID-19 cases respectively. When the top remittance sending countries are inhibited economically, there is a drop in the need for labor and thus remittances to Nepal are depressed. 



Not just the Gulf countries, other top destinations for Nepali workers like Malaysia and  South Korea have also been severely impacted. A global economic downturn has hurt the exports with the United Nations Conference on Trade and Development Predicting a $2 trillion economic loss, by default hurts the demand for workers and the remittances from the earnings.

Double Whammy for Overseas Nepalese 

In addition to reduced workload and earning, Non-resident Nepalis (NRN) face an unprecedented health crisis.

It is hard to overstate the role of NRN in the Gulf, where many industries like construction, sanitation, transportation, and hospitality depend on the supply of hardworking migrant Nepali workers. They often live in shared accommodation so that they can send more money home. Such conditions are such that it is difficult to maintain the public health safety advice of the World Health Organization to practice social distancing and hygiene. 

For instance, in Qatar, another top destination for the Nepali Overseas workers has been in a construction boom to prepare for the World Cup in 2022. They have found hundreds of confirmed COVID-19 cases in an industrial zone where many migrants live. The Kingdom of Saudi Arabia where more than one-third of its population are foreigners, according to the Central Intelligence Agency’s World Factbook, also confirmed that more than half of its cases of COVID-19 were foreigners. Remittances will continue to come under pressure in the months to come.

Domestic Economy During the Pandemic 

  • The agriculture sector of Nepal is characterized by subsistence farming. One major impact in the sector will be due to the lack of supply of raw materials such as fertilizers and pesticides. This will lower the yield and agricultural production to put more strain on the already depressed economy. 
  • Businesses have been closed in public spaces like cultural centers, cinema halls, stadiums, museums, nightclubs, health clubs, and swimming pools and other places of recreational activities till April 30.
  • Nepal Government Projects under delay: The coronavirus outbreak suspended government several infrastructure projects in Nepal 
  • The wholesale and retail sector, the second-largest contributor to the Nepal economy that constituted about 14 percent of the economy is greatly affected by the drastic downfall of retail goods imports and this large number of imports are from China.
  • The supply chain of raw materials: Nepal manufacturing industries greatly rely on raw materials from China and India and the unavailability of raw materials has impacted the manufacturing industry. 

Impact of Coronavirus on Travel and Tourism 

Tourism is a mainstay of the economy that is one of the biggest sources of both direct and indirect employment. In 2019, the Travel and Tourism industry of Nepal generated $2.1 billion and contributed 7.9% to the GDP composition, according to the  World Travel and Tourism Council report. The Himalayan nation recorded over 1 million foreign tourists and supported 1 million jobs and is a major foreign exchange earner.  

India, China, the United States, and the United Kingdom were the top contributors to the Tourism industry.

tourism

The government of Nepal has banned international flights and domestic airline ticket prices dropped to a third of normal prices following the announcement. While the situation of the pandemic seems under control for Nepal, restrictions on international and domestic flights around the world in order to contain the spread of the virus have brought the Travel and Tourism economy to a standstill. 

The shutdown has affected the livelihoods of the 1 Million people who had dependent on Tourism and deprived another million who were likely to be benefited from “Visit Nepal 2020” from the chance at livelihood. The Nepalese government had set a target to attract around  2 million tourists in 2020, almost 100% increase compared to the previous year, under the “Visit Nepal 2020” Campaign.

Nepal saw a building spree triggered by the optimism surrounding the campaign. As the hotel and travel sector is facing an all-time low occupancy,  banks and financial institutions will likely face a severe liquidity crunch if the loans are not repaid.

Hopes of Recovery

Nepal’s weak healthcare systems could prove catastrophic although the low numbers of infected cases make its demographics an advantage compared to other South Asian countries. 

As uncertainty will continue to surround the pandemic, there is fear among the public on how deep and widespread the economic fallout would be. Small developing countries like Nepal with limited resources and poor healthcare systems cannot fight offset alone without international aid. The road of recovery is uncertain and long till the virus has been contained and the world can finally get back to normal.

Although, Nepal does not have sufficient resources and manpower for the massive testing and treatment of the COVID-19. The government’s early decision to call a nationwide lockdown and shutting down international borders are showing results.

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