News Roundup: Economy Chugs Along Despite Political Stalemate

Roundup of Nepali Economic and Business News for June 13-July 31
By NepaliEconomy.com
News Archive

MK Nepal resigned as the PM of Nepal: On June 30th, MK Nepal resigned as the PM after 13 months in office and as per the Big Three Agreement just prior to the May 28th deadline to finish writing the Constitution. It has been more than a month since but forming a permanent government whether based on consensus or based on majority has been a moving target. This deadlock has forced MKN's caretaker government, as per the Interim Constitution to pass an an interim Rs 110 billion budget. The lack of full-fledged budget is already impacting the economy. At least the Maoists are not suffering, according to a report the government has so far paid Rs. 4.7 billion to Maoist combatants since the CPA in 2006.

The NRB unveils its monetary policy & Shortage of IC continues: On July 28, the NRB unveiled its 2010/11 monetary policy. The bank raised the benchmark rate by 50bp to 10 percent and kept the inflation target at 7 percent - the latest figure for mid-June is 9.6%. It relaxed its policy for real estate investment but tightened licensing policy for new banks. Separately, the NRB said that the liquidity crisis is over now that deposits are soaring at the banks on the back of improving BoP. For whatever reason (possible depreciation?) there is shortage of IC in the country; traders' are venturing as far as Baglung (your truely's home district) in search of IC notes. To alleviate the shortage,the NRB is planning to open accounts in Indian banks in the bordering region, has put limits on the withdrawals of IC from Nepali-bank issued ATMs in India and requested the RBI the permission to use IC 500 and 1,000 notes in Nepal.

The NOC keeps grabbing headlines for the wrong reasons: The state-owned NOC decided to give a huge bonus to its employees claiming Rs 3.31 billion profit during the year but the CIAA and its own Board blocked the bonus. NOC employees are now threatening a strike if not given the bonus. The NOC had earlier raised prices on petrol by Rs. 3/liter and kerosene by Rs. 2.50/liter. And before jacking up the prices, the NOC played a chicken-game with the State by drastically reducing the imports of oil and creating an artificial shortage. All this is happening while the NOC's Amlekhgunj depot is posting a record loss of 0.91%. The NOC is not the only PE suffering; Janakpur Cigarette Factory is on a verge of closure.

Nepal continues to exports labor and import goods: With Birgunj alone losing 20,000 jobs due to deteriorating security situation, the surplus labor of Nepal is going anywhere it can to find a decent job, at the rate of 800/day- Khasa, Singapore/Brunei, Malaysia, Japan, Libya, Poland, Israel and even Iraq. On June 18th, 42,000 Nepalese lined up for 4,000 jobs in Korea under EPS. According to the Foreign Employment Promotion Board, more than 3 million Nepali youths are currently toiling in foreign lands; ironically, this is causing a shortage of skilled labor in Nepal's construction sector. Given the importance of migrant workers, the Nepalese government has yet to establish a comprehensive policy or implement the policies it has effectively. Remittances, 66% of which comes from official channels helped offset a surging trade deficit - in the first 11 months of 2009/10 imports rose 35% but exports declined 9.8% causing a whopping Rs. 287 billion in trade deficit. As a sign of the country's deteriorating competitiveness, Nepalese garment industry received zero orders from the US in June and FDI in the first 8 months of 2009/10 plunged 27% to a mere Rs. 3.45 billion. On the bright side, the NRB is trying to channel remittance to productive sectors by issuing 5-Year Foreign Employment Bond with an interest of 9.5%.

Nepal continues to dream about Hydropower: A government sponsored task force has produced a report that targets 36,628MW of hydropower within the next 20 years, and 2,057MW over the next 5 years including 170MW for exports. This comes on the heels of another government report that said only 2 hydro projects totaling 2MW were completed in the last fiscal year and that another 21MW will be completed in the next fiscal year. The 456MW, Rs. 35.29 billion Upper Tamakoshi finally got funding to go ahead - it is scheduled to open in 2015, already two years behind schedule. The government is trying to rein in the freewheeling nature of hydropower licensing; it recently issued 3 licenses worth Rs. 130 million. Hydropower development could face some setback given that the PAC has found irregularities in PPA agreements on 36MW Upper Bhotekoshi and 60MW Khimti; according to the PAC, they have caused Rs. 19.8 billion and Rs. 9.5 billion deficit to the NEC in the past decade. There is some good news, load-shedding has come down to 2 hours a day with the onset of the Monsoon.

Banking continues to be a lucrative business in Nepal: Nepal's 27 commercial banks are expected to rake in more than Rs. 15 billion in profits despite so-called liquidity crunch. Part of the reason is that banks are aggressively lending i.e. leveraging their balance sheets. Nepal's banking are apparently not issuing debentures as much as they are making loans. Not surprisingly bank branches are proliferating like rats to harvest deposits. Mega Bank led by Anil Shah became the 28th Commercial Bank on July 23. Amidst the sea of bank profits, Nepal relies on foreign aid to implement financial reforms. In non-banking news, a new derivative broker opened for business but in stock market, the process of selecting 27 new brokers from current 23 continues to be mired in controversy. Amidst these bureaucratic snafu, SEBON lobbies the government to bring in NRN into the stock market. Another interesting tidbit, Nepal pays almost a billion rupees in premium to foreign reinsurers.

On the infrastructure sector, the ADB has raised the cost estimates for 4-lane Kathmandu-Terai Fast Track Road to $1 billion and few global contractors are interested to invest in it under BOOT model. Nepalese investors however lament a lack of PPP guidelines. The government plans to build a second international airport at Nijgadh in Bara district this fiscal year. In another milestone, the construction of 100km Rs. 2.17 billion Darchula-Tinkar road has commenced.

Agriculture sector continues languish although 77% of the paddy fields have been planted thus far owing to a good Monsoon. But Monsoon is not the only factor; the other is fertilizer and Nepal is experiencing fertilizer shortage cause by government mismanagement. The NPC says, even with a normal harvest, Nepal will be a food deficit country over the next 3-5 years. Food deficit in Nepal has increased to 316K tons in 2009/10 from 133K in 2008/09, and 24,000 people in 14 VDCs in remote Mugu may go hungry. In the midst of this situation, production of cash crop is up 13% during the year.

Tourism sector is improving and the government is implementing policies to meet the NTY 2011 target. Tourist arrivals jumped 16.3% in June. Now tourists can now stay with Nepali families in rural areas as per new home stay policy. More than 80,000 trekkers trekked through the Annapurna Conservation Area in 2009/10. Hotel sectors' revenue rose 15% last year; Soaltee posted Rs. 108 million in profit. Not surprisingly, 2 new 3-star and 64 non-star hotels were started last year. In order to promote domestic tourism, the government wants to give allowances to bureaucrats to be domestic tourist, uh!

Telecom is probably the most developed sector in the country. NT has reached all 3,915 VDCs and wants to add 5 million new subscribers in the coming 3 years to make the total 13 million.

In an interesting piece of news, apparently, the city scavengers are not the pitiful bunch after all - according to a non-profit, they earn a whopping Rs. 21,000 a month, go figure!