News Roundup: Is Nepal Suffering From Financial Crisis or Not?

Roundup of Nepali Economic and Business News for Mar 31-Apr 10
By NepaliEconomy.com
News Archive

Is Nepal suffering from financial crisis or not? Nepal Rastra Bank (NRB) seems to think so. As such, it is putting restrictions on establishment of news banks and tightening rules on obtaining foreign currency and importing of gold to the consternation from the importers. It is deploying creative tools to alleviate the liquidity crunch by helping banks refinance loans up to Rs. 25 billion (aggregate?) in 4 key sectors. The performance of banks suggests otherwise. Laxmi Bank which turned 9 is expected to post Rs. 410 million operating profits in Q3 of 2009/10. Agriculture Development Bank which issued the largest IPO that was oversubscribed by 150 percent expects its profits to increase from Rs. 1.06 billion in 2008/09 to Rs. 2.06 billion in 2011/12. Everest Bank's operating profits are up 31 percent in the first 8 months of the fiscal year compared to the same period in the previous year. Nepalgunj based Bageshwari Development Bank plans to expand from 3 districts to 10 districts and issued 20 percent bonus shares to the shareholders. The likely reason for banks' profitability are (a) as noted by Governor Khatiwoda banks are maintaining excessive spreads (b) banks are changing interest rates arbitrarily especially for land developers. On another NRB news, it is launching plans to make financial services accessible to poorest districts by working with micro-lenders.

While the government is having trouble spending development budget, it seems to have no such problem in spending in other ways. Owing to higher government workers' salaries and bigger spending on security in Terai and for Machine Readable Passport (MRP), the MoF is likely to ask for Rs. 8-9 billion supplemental budget to meet the shortfall by the end of the fiscal year.

India officially revoked additional 4 percent custom duties on Nepalese exports. Nepal's trade delegation is in the US to negotiate trade concessions under Trade and Investment Framework Agreement (TIFA). The two countries signed on 7-points agreement but Nepal could not get zero-tariff on garment exports. China is preparing to phase in zero-tariff treatment to 95 percent of Nepal's products without any conditions. The competition amongst Nepal's benefactors could benefit Nepal's export, especially garment industry, which saw another big decline in exports in March.

As reported early in the year, the government is preparing to divest shares of eights Public Enterprises (PEs) in a bid to boost their competitive strength. They include Dairy Development Corporation (DDC), Herbs Production and Processing Company Ltd (HPPCL), Hetauda Cement Factory (HCF), Nepal Drug Ltd (NDL), National Seed Company Ltd (NSCL), National Trading Ltd (NTL), Gorkhapatra Corporation (GC) and Agriculture Input Company Ltd (AICL).

Nepal is facing a twin problem of food deficit and food price inflation - 4o or 75 districts are facing food shortage this year. The causes are flood and drought. According to MoAC drought caused decline in wheat production by 17 percent, paddy by 11 percent and corn by 4 percent. To make the matter worse, Nepal Food Corporation (NFC) has stopped supplying rice to food deficit districts citing budget constraints. The total demand for grains is around 30,000 tons. Kathmandu is facing decline in supply of goats from 10,000 per week to 6,000-7,000. India supplies up to 80 percent of capital's goat demand. At the other end of the country, in Itahari, Shangri-La International Food Industry is exporting 60 tons of meat every month. Prices of meat remained stable despite cross-current of factors.

Hydropreneurs are not signing power purchasing agreement (PPA) with NEA because they failed to agree on the rate - NEA is offering Rs. 4.50 per unit but developers are demanding Rs. 6 to compensate for higher costs of building plants owing to adverse political and economic environment. Government wants to construct a micro-hydro in each of 4,000 village development committees. The big 4 hydro developers from India - GMR (300MW Upper Karnali, 600MW Upper Marsyangdi II), Bhilwara Energy (120MW Likhutar) and PES Engineers (110MW Phulkot Karnali) - want security guarantee for their investments in Nepal. Even domestic businessmen worry about insecurity and justifiably so when Police DIG's home gets robbed. In the midst of this all, Nepal's delegation in the US is trying to attract US investment the hydro sector.

Tourism arrivals were up about 35 percent in March 2010 and is the tenth consecutive monthly increase. To accommodate increase in tourism - Nepal has 669 tourist-level hotels with 26,063 beds but faces a shortfall of 822 beds daily - government considered relaxing its home-stay policy but it decided not to.

Here we go again. NOC is facing Rs. 250 million loss a month and cooking gas which costs consumers Rs. 1,250 and NOC Rs. 183 loss per cylinder is the main culprit. Prices are likely to go up in April. NOC is also delaying its plan to increase the availability of 91-octane petrol until October.

Nepal Telecommunications Authority is recommending that government provide broadband and VoIP accessible to one village development committee in 38 districts of 13 zones under ADB financed US$25 million Information and Communication Technology Development project (ICT).
Nepal is rich in limestone, the main ingredient for making cement. Yet the country only meets 15 percent of 2.5 million tons annual demand. New companies in pipeline, including Ghorahi Cement which will be operational in mid-2011, will enable domestic contribution to increase to around 50 percent by 2012.

The controversy over MRP continues. Here is the timeline of events. Following April 1 deadline, the government stopped issuing passports until MRP arrived from India, which won't be until early June. In order to prevent impacts on government revenue (5,000 passports are issued each day contributing Rs. 25 million to the national treasury) and remittances (over 700 Nepalese go abroad (ex-India) daily in search of work) the government started issuing handwritten passports on a need basis. But there is big political fallout as the PM conceded that the main reason for giving the no-bid contract to Indian government was because of political pressure from the neighbor. Supreme Court has joined the fray by ordering government not to proceed with the contract. For those heading to the UK for work/study/business, expect higher visa fees.