World economies

Published August 31, 2015

Nepal

Nepal is among the poorest and least developed countries in the world and the second poorest in Asia, with a GDP per capita of $2,381 on purchasing power parity basis or $698 at current prices as reported by the World Bank.

Its poverty levels have fallen significantly in recent years from 41.2pc of the population living on less than $1.25/day in 1995 to 24.8pc. Tourism is one of the mainstays of its economy. A heavy reliance on tourism and agriculture makes Nepal’s economy very sensitive to climate variability. Nepal is also heavily dependent on external aid.

The country is heavily dependent on remittances, accounting for 22-25pc of its GDP. Almost half of Nepali families rely on incomes from abroad. It has struggled to realise its economic growth potential in recent years and has achieved remarkable progress since the end of the civil war in 2006.

But the domestic economy is still characterised by low productivity and the low private investment, resulting from political instability, corruption, poor infrastructure, and insufficient political attention to economic policy. The socio-political and economic situation remains fragile.

The deadliest earthquake since 1934 that hit Nepal on April 25 this year and its continued after- shocks have claimed more than 8,500 lives and pushed almost 1m people below the international poverty line of $1.25 a day.Nepal’s finance minister estimates that the quake has cost at least $10bn to the economy.

The ADB has estimated last year’s economic growth at 3.8pc and expects final assessment could bring it further down to between 3pc and 3.5pc. The Central Bureau of Statistics has revised the growth rate to 3pc for 2014-15 against 5.5pc in 2013-14.

The government has announced NRs819 bn (about $8.11 bn) budget for FY 2016, the largest in the history of Nepal, envisaging a large increase in spending. Most resources will be used for reconstruction and resettlement projects, development of infrastructure and regional budgets.

Assuming a stable political situation, a normal monsoon, effective execution of budget, and strong remittance inflows, the government expects GDP to rebound to 5.1pc in FY2016. However, the ADB expects the economy to grow by 4.5pc, down from the earlier projection of 5.1pc growth while some economists put it at 3pc.

A conference hosted by Nepal in June to raise $6.6bn needed for the reconstruction of the economy hit by the two earthquakes received pledges of aid worth $4.4bn only. India has so far been the biggest helper with a $1bn assistance-package in grant and soft loans.

At the same time, Nepal owes $3.8bn in debt to foreign lenders, including $1.5bn each to the World Bank and the ADB, $133m to Japan, $101m to China and $54m to the IMF.

The country faces major bottlenecks in delivering sustained economic-growth. Unreliable electrical power supplies and low-quality transportation networks are obstructing job creation and the delivery of services. The regulatory framework is weak. Operational capacity to manage the fiscal costs of a financial crisis is limited.

Some financial institutions remain at risk of insolvency due to inadequate risk management practices, poor corporate governance and high credit exposure. Effective policies are needed to address these problems.

Myanmar

Myanmar is now going through an economic, social and political revival, helped by a gradual lifting of the crippling economic and diplomatic sanctions levied by the West years ago.

The lifting of sanctions in 2013 opened avenues for investment and revived markets. Within a year, foreign investment in the country’s energy, transportation, tourism, retail, and telecommunications industries surged by over 40pc.

Last year, FDI saw a 150pc jump to $3.5bn. Imports jumped 26pc and exports, mostly to neighboring countries, rose 15pc. The increase in foreign investment, consumption and exports has produced record growth at an average of 8pc in the past two years.

The economy is expected to perform strongly in 2015/16. The government is predicting 9.3pc growth. With domestic demand likely to increase on the back of wage rises, the government foresees its trade deficit – projected at $3.7bn - for this year coming under pressure. The 2014/15 gap reached $4.5bn, 88pc higher over the preceding 12months.

On the fiscal side, the IMF sees a rise in the government budget deficit to 5.5pc of GDP while the tax revenue is only 4.5pc of GDP. Though the IMF revenue figure is higher at 7pc, the rate is the lowest in Asean, which averages above 15pc.

The government needs to increase resources by strengthening tax compliance and promptly implementing the commercial tax on telecommunication services. There is a need for increasing expenditure on health, education and infrastructure by reducing spending in non-essential areas.

Dollarisation has become a major issue. The kyat has been steadily depreciating against the dollar, causing the gap between the official and unofficial exchange rates to widen. The currency has depreciated by 23.5pc against the dollar this year, from K1025 to K1266, according to the Central Bank reference rate. The ongoing depreciation of the kyat remains an area of concern for the government.

In May, the CBM halved the daily withdrawal limit from local dollar bank accounts to $5,000 from a previous limit of $10,000. The bank also urged government organisations to conduct all transactions within the country in kyat.

Foreign direct investment has soared to more than $8bn this year, $3bn more than anticipated, owing to increased activity in the energy, manufacturing and telecom sectors but foreign reserves held by the Central Bank of Myanmar remain below three months of imports.

Published in Dawn, Economic & Business, August 31st, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play

Opinion

Editorial

Judiciary’s SOS
Updated 28 Mar, 2024

Judiciary’s SOS

The ball is now in CJP Isa’s court, and he will feel pressure to take action.
Data protection
28 Mar, 2024

Data protection

WHAT do we want? Data protection laws. When do we want them? Immediately. Without delay, if we are to prevent ...
Selling humans
28 Mar, 2024

Selling humans

HUMAN traders feed off economic distress; they peddle promises of a better life to the impoverished who, mired in...
New terror wave
Updated 27 Mar, 2024

New terror wave

The time has come for decisive government action against militancy.
Development costs
27 Mar, 2024

Development costs

A HEFTY escalation of 30pc in the cost of ongoing federal development schemes is one of the many decisions where the...
Aitchison controversy
Updated 27 Mar, 2024

Aitchison controversy

It is hoped that higher authorities realise that politics and nepotism have no place in schools.